(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrants Principal Executive Offices)

Puglisi & Associates

850 Library Avenue, Suite 204

P.O. Box 885, Newark, Delaware 19715

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)

Copies to:

James C. Lin, Esq.

Davis Polk & Wardwell LLP

c/o 18th Floor, The Hong
Kong Club Building

3A Chater Road

Central, Hong Kong

(852) 2533-3300

Leiming Chen, Esq.

Daniel Fertig, Esq.

Simpson Thacher & Bartlett LLP

c/o 35/F, ICBC Tower

3 Garden Road

Central, Hong Kong

(852) 2514-7600

Approximate date of commencement of proposed sale to the public: As soon as practicable
after the effective date of this Registration Statement.

If any of the securities being registered on this
form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities
Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

CALCULATION OF REGISTRATION FEE

Title of Each Class of

Securities to be Registered

Amount to beRegistered(2)(3)

ProposedMaximumOffering Priceper Class BOrdinaryShare(3)

ProposedMaximumAggregateOffering Price(3)

Amount ofRegistrationFee(4)

Class B ordinary shares, par value US$0.01 per share(1)

US$200,000,000

US$23,220

(1)

American depositary shares issuable upon deposit of the Class B ordinary shares registered hereby will be registered pursuant to a separate
registration statement on Form F-6 (Registration No. 333- ). Each American depositary share represents
Class B ordinary shares.

(2)

Includes (a) Class B ordinary shares represented by American depositary shares initially offered and sold outside the United States that
may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public,
and (b) Class B ordinary shares represented by American depositary shares that are issuable upon the exercise of the underwriters option to purchase additional ADSs. These Class B ordinary shares are not being registered for the
purposes of sales outside the United States.

(3)

Estimated solely for the purpose of computing the amount of registration fee in accordance with Rule 457(a) under the Securities Act of 1933,
as amended.

(4)

Previously paid.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and
Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any
jurisdiction where such offer or sale is not permitted.

SUBJECT TO COMPLETION. DATED , 2012

American Depositary Shares

Cloudary Corporation

Representing Class B Ordinary Shares

This is the initial public offering of American depositary shares, or ADSs, of Cloudary Corporation. We are offering ADSs, and
Shanda Investment Holdings Limited, or Shanda Investment, which is our parent and the selling shareholder, is offering an additional ADSs. Shanda Investment is a wholly owned
subsidiary of Shanda Interactive Entertainment Limited. Each ADS represents Class B ordinary shares, par value US$0.01 per share, of Cloudary Corporation. The ADSs
are evidenced by American depositary receipts, or ADRs. We will not receive any of the proceeds from the sale of ADSs by the selling shareholder.

Our share capital consists of Class A and Class B ordinary shares and Series A preference shares. Holders of Class A ordinary shares and Class B ordinary shares have the same
rights except for voting and conversion rights. Each Class B ordinary share is entitled to one vote per share, and each Class A ordinary share is entitled to ten votes per share and is convertible at any time into one Class B ordinary
share. Class B ordinary shares are not convertible into Class A ordinary shares under any circumstances. Shanda Investment holds all of our outstanding Class A ordinary shares and Series A preference shares. Immediately following
the completion of this offering, Shanda Investment intends to convert all of the Series A preference shares it currently holds into our Class A ordinary shares on a one-for-one basis and will
hold % of the combined total of our outstanding shares (representing % of the total voting rights) in our company, assuming the underwriters do
not exercise their over-allotment option to purchase additional ADSs. See Principal and Selling Shareholder. Following such conversion, our share capital will consist of our Class A and Class B ordinary shares. Our
multiple-class share structure involves certain risks. See the relevant risk factors on page 51 of this prospectus for a detailed discussion of such risks.

We will be deemed a controlled company within the meaning of Section 303A of the New York Stock Exchange Listed Company Manual and, as a result, will rely on exemptions from certain corporate
governance requirements that provide protection to shareholders of other companies subject to NYSEs corporate governance requirements, and we will also rely on the foreign private issuer exemptions from most of the corporate governance
requirements under the NYSE rules. See the relevant risk factors on page 51 of this prospectus for a detailed discussion. We are an emerging growth company as such term is used in the Jumpstart Our Business Startups Act of 2012. See the
relevant risk factor on page 34 of this prospectus for a detailed discussion.

We intend to use a portion of
the net proceeds we receive from this offering to repay all of our outstanding long-term borrowings from Shanda Interactive Entertainment Limited and its affiliates in the amount of RMB434.8 million (US$69.0 million) as of March 31, 2012.

Prior to this offering, there has been no public market for our ADSs or our ordinary shares. The ADSs have
been approved for listing on the New York Stock Exchange under the symbol READ. It is currently estimated that the initial public offering price per ADS will be between
US$ and US$ .

See Risk Factors beginning on page 15 to read about factors you should consider before buying our ADSs.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

Per ADS

Total

Public offering price

US$

US$

Underwriting discount

US$

US$

Proceeds, before expenses, to Cloudary Corporation

US$

US$

Proceeds, before expenses, to the selling shareholder

US$

US$

To the extent that the underwriters sell more
than ADSs, the underwriters may purchase up to an additional ADSs from us and the selling
shareholder at the initial public offering price, less the underwriting discount.

The underwriters expect to
deliver the ADSs evidenced by the ADRs against payment in U.S. dollars in New York, New York on or about , 2012.

You should rely only on the information contained in this prospectus or in any related free writing prospectus filed with
the Securities and Exchange Commission, or the SEC, in connection with this offering. Neither we, the selling shareholder nor the underwriters have authorized anyone to provide you with additional information or information different from that
contained in this prospectus or in any free writing prospectus. We and the selling shareholder are offering to sell, and seeking offers to buy, ADSs only in jurisdictions where offers and sales are permitted. The information contained in this
prospectus or in any free writing prospectus is accurate only as of its date, regardless of the time of delivery of this prospectus or of any sale of ADSs.

Neither we, the selling shareholder nor the underwriters have taken any action to permit a public offering of the ADSs outside the United States or to permit the possession or distribution of this
prospectus outside the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about and observe any restrictions relating to the offering of the ADSs and the distribution of this
prospectus outside the United States.

Until , 2012 (the 25th day after the date of this prospectus), all dealers that buy, sell or trade ADSs, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

This summary highlights selected information appearing elsewhere in this prospectus. This summary may not contain all
of the information you should consider before investing in our ADSs. You should carefully read this prospectus, including our consolidated financial statements and related notes and the sections entitled Risk Factors and
Managements Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this prospectus, and the registration statement of which this prospectus is a part in their entirety before investing in
our ADSs, especially the risks of investing in our ADSs, which we discuss under Risk Factors. This prospectus contains statistical data and information extracted from the iResearch report and Openbook, each of which we commissioned for
the purpose of providing information on Chinas online literature market and offline publishing market. This prospectus also includes statistical data and information contained in publicly available research reports prepared by iResearch, which
we did not commission. iResearch refers to iResearch Consulting Group, an independent market research firm, and iResearch report refers to the report issued by iResearch dated March 15, 2012, which we commissioned for the
purpose of providing information on Chinas online literature market and offline publishing market. Openbook refers to the report issued by Beijing Openbook Co., Ltd., an independent market research firm, dated March 15, 2012, which
we commissioned for the purpose of providing information on Chinas online literature market and offline publishing market. We, us, our company and our refer to Cloudary Corporation, a Cayman
Islands company, and its predecessor entities, subsidiaries and affiliated entities.

We intend to use a
portion of the net proceeds we receive from this offering to repay all of our outstanding long-term borrowings from Shanda Interactive Entertainment Limited and its affiliates in the amount of RMB434.8 million (US$69.0 million) as of March 31, 2012.

Our Mission

Our mission is to enrich peoples lives by empowering them to create, share and enjoy literary content, anytime, anywhere. Our innovative platform  which transforms the creation and consumption
of literary content into an interactive process  taps into the creative and entrepreneurial aspiration of millions of Chinese by breaking down the barriers to publishing, enabling their self-published literary works to reach a vast community
of readers. We embrace individuals who write, from bestselling authors to first-time authors who are inspired to write after becoming a reader in our online literary community.

Overview

We are the largest online community-driven literary platform in China. Our platform comprises an expanding library of original and copyrighted third-party literary works and a large and highly engaged
community of users which can be monetized across multiple media formats and devices. Our platform includes six original literature websites covering a wide array of genres, which in the aggregate attracted an average of approximately 66.9 million
monthly unique visitors in the first quarter of 2012, according to monthly statistical reports issued by iResearch. Since our inception to March 31, 2012, over 1.6 million authors had created approximately 6.0 million literary works on our
websites. Through our distribution partner, the central reading station of China Mobile, our content attracted 68 million unique mobile visitors, including 21 million who purchased premium content, and 1.6 billion average monthly mobile page views
in 2011. A total of 115 million unique mobile visitors viewed our content through the central reading station of China Mobile from March 2010 to December 2011.

Our online Chinese literature community is widely recognized as the leading destination for online literature in China. According to the iResearch report, five of our six original literature websites are
among the top ten most visited Chinese literature websites, based on the amount of user time spent in 2011. In 2011, we had over 72.1% of Chinas online literature market in terms of revenues and 57.7% of the market in terms of user time spent,
according to the iResearch report. Our qidian.com is the largest Chinese original literature website, with 43.8% of Chinas

online literature market in terms of revenues in 2011, according to the iResearch report. We believe our large and highly engaged online community creates a natural network effect that attracts
Chinas aspiring and established authors, thereby helping to perpetuate its relevance and growth.

We
provide a medium for authors to publish literary works that can easily reach a vast audience at a pace and scale that was not possible prior to the Internet age. Our community helps to define our authors, and our authors have long defined us, with
imaginative literary work created by authors and by the input of millions of readers. Our readers comment, rate and provide feedback on authors literary works as they are continually published in series, often by chapters, and provide
encouragement and support to their favorite authors. This interaction between authors and readers enhances user stickiness and encourages readers to regularly visit our online literature library. Many of our readers are encouraged and inspired to
begin writing by ideas shared in our community.

We offer a comprehensive and continually expanding library of
original literary works covering a wide array of genres, from fantasy, wuxia (a genre of Chinese fiction concerning the adventures of martial artists and knight errant), science fiction and mystery to romance. The title of one of our fantasy novels
published on our website, Dou Po Cang Qiong, was the most searched term on baidu.com during April 2011, ahead of NBA, Taobao, Youku and QQ, according to Baidu Search Ranking. One of our literary works, The Desolation
of the Ancient Path atYangguan, was selected as reading test material for Chinas college entrance exam in 2008. Our online literature library, consisting of literary works generated by our online community, had approximately 6.0
million titles as of March 31, 2012. In the first quarter of 2012, an average of 80 million Chinese characters were uploaded daily to this library. In addition, we offered over 118,000 audio book chapters and more than 710 electronic magazines
on our platform as of March 31, 2012. Further, as of March 31, 2012, more than 330 third-party content providers, including publishers and authors, had agreed to make more than 84,560 copyrighted books available on our platform. Our library is also
complemented by our offline publishing business, which published two of the top three bestselling literature books in China in 2010 and the bestselling general interest book published among private publishing companies in China in 2011, according to
Openbook. Our readers can access all of the content in our online literature library and from third-party providers and selected content from our offline publishing business through Yun Zhong Shu Cheng (yuncheng.com), which is a website
we launched in October 2010 to aggregate content sourcing and distribution.

We currently offer free as well as
paid premium content. We generate revenues primarily by charging users for viewing paid content in our online literature library through a variety of devices and using our community tools and through revenue-sharing arrangements with other
distribution channel providers, including e-readers and wireless carriers. We license certain content rights to online games companies and television and film studios and also sell advertisements on our websites. We generate revenues from our
offline publishing business by selling books through chain and online bookstores and wholesalers.

In the last
three years, our business has grown rapidly. In 2009, 2010 and 2011, our net revenues were RMB134.6 million, RMB393.0 million and RMB701.1 million (US$111.3 million), respectively, representing a compound annual growth rate, or CAGR, of
128.3%. We recorded net losses of RMB74.5 million, RMB56.5 million and RMB35.9 million (US$5.7 million) in 2009, 2010 and 2011, respectively. Our net revenues increased to RMB191.7 million (US$30.4 million) in the first quarter of 2012
from RMB138.7 million in the first quarter of 2011. We had a net income of RMB3.1 million (US$0.5 million) in the first quarter of 2012 compared to a net loss of RMB3.7 million in the first quarter of 2011.

Shengting Information Technology (Shanghai) Co., Ltd., or Shengting, our PRC subsidiary, had no accumulated profit as of
December 31, 2009, 2010 and 2011 and March 31, 2012 and therefore has not been and will not be able to pay dividends to our offshore entities until it satisfies the statutory reserve fund requirements under PRC laws. See Managements
Discussion and Analysis of Financial Condition and Results and Operations  Holding Company Structure. Shengting may continue to incur net losses in the future as we continue to invest in the growth of our businesses and therefore
may not be able to pay dividends to us, which could limit our ability to pay dividends to our shareholders.

The online literature industry encompasses the creation, distribution and consumption of literary content across multiple media formats and devices. In contrast to the traditional media industry in China,
which is either directly owned and operated or controlled through strict governmental regulation at various levels, online literature is a new form of media that provides authors with more autonomy and control over the creation of their literary
works. The domestic book publishing eco-system has remained highly fragmented in terms of both production and distribution. The development of online literature in China has been further fueled by trends such as the rapid adoption of Internet and
wireless connectivity, rising disposable income, continued migration of consumers online, development of e-commerce infrastructure, the digitization of literary content and supportive governmental policies for the creative industries.

Online literature platforms have transformed the process through which literary content is created, distributed, consumed
and monetized.



Creation  Online literature platforms enable a large number of individuals to more easily create and publish content for a broad
audience. They provide a more efficient and transparent forum for readers and online literature websites to discover and identify talented authors.



Distribution  Online literary content can be distributed over the Internet and wireless networks. The proliferation of mobile connected
devices, including smartphones, mobile tablets, e-readers and other mobile devices, makes it possible for online literary content to be distributed and accessed virtually anywhere, anytime.



Consumption  The interactive characteristics and community functions of online literature platforms make reading and writing a more
engaging experience, where an increasing number of users search, read, comment on and share literary works and offer encouragement and support to their favorite authors.



Monetization  After more than a decade of development, the online literature industry has developed a monetization model that covers
online paid reading, wireless subscription, targeted advertising and copyright licensing to various entertainment industries.

Chinas online literature industry is at a turning point and is evolving rapidly as an increasing number of users enjoy and authors create literary content across multiple media formats and
internet-enabled devices. According to the iResearch report, Chinas original online literature industry grew rapidly in terms of revenues, from RMB150 million in 2009 to RMB600 million in 2011, representing a CAGR of 100.0%.
Chinas online original literature market is highly concentrated with the industry leader accounting for 72.1% of market share in 2011, according to the iResearch report.

Offline Publication

Offline publication remains the
largest segment of the total publishing market in China, predominantly led by the state-owned publishing houses. With approximately 3,000 private publishing companies in China, the private sector is increasingly playing an important role in
Chinas offline publication market due to its flexible, market-oriented operations. Book retail value (calculated based on the suggested retail price of each book multiplied by sales volume) of the largest five private publishing companies in
China grew from RMB1,482 million in 2009 to RMB2,442 million in 2011, representing a CAGR of 28.3%, according to Openbook.

Our Strengths

We believe the following strengths have
contributed to our success and differentiate us from our competitors:

Experienced management team with complementary skills in literature and online media.

Our Strategies

Our goal is to continue to grow our large online community to drive literary content creation and consumption through our platform. We intend to achieve this goal through the following strategies:



Continue to attract, develop and retain promising and established authors and increase the breadth and depth of our content library;



Further expand our user base and enhance their experience; and



Further develop, expand and diversify our revenue sources.

Risks and Uncertainties

Investing in our ADSs involves a high degree of risk. You should consider carefully the risks and uncertainties summarized below, the risks described under Risk Factors beginning on
page 15 of, and the other information contained in, this prospectus before you decide whether to purchase our ADSs:



Our history of net losses and net operating cash outflows;



Our ability to protect the intellectual property of our literary content and to comply with the relevant rights of third parties;

In 2008, Shanda Interactive commenced a series of reorganization
activities to provide each of its business sectors, including online literature business, with a sharper focus on its respective industry. As part of the reorganization, in October 2008, Shanghai Hongwen Networking Technology Co., Ltd. (formerly
known as Shanghai Shengxuan Networking Technology Co., Ltd.), or Shanghai Hongwen, was established by Ms. Dongxu Wang and Mr. Mingfeng Chen, each holding a 50% equity interest. In 2008, Shengting entered into a series of contractual
arrangements with Shanghai Hongwen and Shanghai Hongwens shareholders through which we gained effective control over the operations of Shanghai Hongwen.

In 2009, Shanda Networking, which previously operated online literature businesses of Shanda Interactive, transferred all its assets and liabilities related to the online literature business to Shanghai
Hongwen. In March 2009, Shanda Networking transferred its 100% equity interest in Xuanting to Shanghai Hongwen for RMB100.4 million. In April 2009, Shanda Networking transferred its 50% equity interest in Jinjiang and 60% equity interest in
Hong Xiu, respectively, to Shanghai Hongwen.

In April 2009, Cloudary Corporation (formerly known as Shanda
Literature Corporation) was incorporated in the Cayman Islands as a direct wholly owned subsidiary of Shanda Interactive. In January 2010, Cloudary Corporation then acquired all the equity interests in Cloudary Holdings Limited from Shanda
Investment. As a result, Cloudary Corporation owns all the equity interest in Shengting and conducts our online literature business in China primarily through our consolidated affiliated entity, Shanghai Hongwen, which is a holding company of the
PRC operating entities.

In August 2010, Shanda Interactive transferred all of its equity interest in
Cloudary Corporation to Shanda Investment. As a result, Cloudary Corporation became a direct wholly owned subsidiary of Shanda Investment. In May 2012, a group of funds comprised of Orbis Global Equity Fund Limited, Orbis Global Equity Fund
(Australia Registered), Orbis Optimal SA Fund Limited, Orbis SICAV Global Equity Fund, Orbis SICAV Asia ex-Japan Fund, Orbis International Equity L.P. and Orbis Optimal Global Fund, L.P. (collectively, the Orbis Entities) purchased from
Shanda Investment an aggregate of 4,899,622 Class B ordinary shares, which were converted from 4,899,622 Class A ordinary shares held by Shanda Investment, for a total purchase price of US$15 million. This share purchase was made pursuant to an
exemption from registration with the U.S. Securities and Exchange Commission available under the U.S. Securities Act of 1933, as amended. Shanda Investment currently holds 98.125% of our outstanding shares and the Orbis Entities collectively hold
1.875% of our outstanding shares.

Since June 2009, in an effort to further expand our online and offline
businesses, Shanghai Hongwen, our affiliated PRC entity, has acquired or established various entities, including our websites and offline publishing companies. See Our History and Corporate Structure.

The following diagram illustrates our corporate and ownership
structure, the place of formation and the ownership interests of our subsidiaries as of the date of this prospectus.

(1)

Shanghai Hongwen is our consolidated affiliated entity established in China and each of Ms. Dongxu Wang and Mr. Mingfeng Chen owns 50% of
the equity interest in Shanghai Hongwen. Ms. Dongxu Wang is an employee of Shanda Interactive and Mr. Mingfeng Chen is an employee of our company.

(2)

We do not consolidate Jinjiang but share in its profit or loss through our 50% equity interest in this entity.

(3)

We do not consolidate Zhejiang Huayun Digital Technology Co., Ltd. as we do not have control over its operations but share in its profit or loss
through our 61% equity interest in this entity.

After the completion of this offering, Shanda Investment and public
investors will have % and % of the total voting power of our shares, respectively,
and % and % of the economic interest of our shares, respectively. The following diagram
illustrates our corporate and ownership structure, the place of formation and the ownership interests of our subsidiaries immediately after the completion of this offering, assuming that the underwriters do not exercise their over-allotment option.

We currently conduct our operations in China through a series of contractual
arrangements entered into among Shengting, Shanghai Hongwen, and Shanghai Hongwens shareholders, including loan agreements, an exclusive call option agreement, powers of attorney and other agreements through which Shengting exercises effective
control over the operations of Shanghai Hongwen and its subsidiaries and receives economic benefits generated from shareholders equity interests in this entity. See Our History and Corporate Structure  Our Corporate
Structure.

As a result of these contractual arrangements and various operational
agreements, we are considered the primary beneficiary of Shanghai Hongwen and its subsidiaries, and accordingly, we consolidate the results of operations of Shanghai Hongwen and its subsidiaries in our financial statements.

In the opinion of our PRC legal counsel, Zhong Lun Law Firm, the ownership structure and the contractual arrangements
among Shengting, our PRC subsidiary, Shanghai Hongwen and/or its shareholders, comply with, and immediately after this offering, will comply with, current PRC laws and regulations. There are, however, substantial uncertainties regarding the
interpretation and application of current or future PRC laws and regulations. Accordingly, PRC governmental authorities may ultimately take a view that is inconsistent with the opinion of Zhong Lun Law Firm. See Risk Factors  Risks
Related to Our Corporate Structure.

After the completion of this offering, Shanda Investment will have
more than 50% of the total voting power of our shares and we will be a controlled company within the meaning of Section 303A of the New York Stock Exchange Listed Company Manual, or the NYSE rules. Moreover, Mr. Tianqiao Chen,
our chairman, currently also serves as the chairman, chief executive officer and president of Shanda Interactive and a director of Shanda Games Limited and Ku6 Media Co., Ltd., or Ku6, subsidiaries of Shanda Interactive. Mr. Danian Chen, our
director, currently also serves as a director and the chief operating officer of Shanda Interactive and a director of Shanda Games Limited and Ku6. Ms. Qian Qian Chrissy Luo, our director, currently also serves as a non-executive director of
Shanda Interactive. Ms. Grace Wu, our director, currently also serves as the chief financial officer of Shanda Interactive and a director of Shanda Games Limited and Ku6.

Corporate Information

Our principal executive offices are
located at 35 Boxia Road, Pudong New Area, Shanghai 201203, Peoples Republic of China. Our telephone number at this address is +86 (21) 6187-0500. Our registered office in the Cayman Islands is located at the offices of Codan
Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. Our agent for service of process in the United States is Puglisi & Associates, located at 850 Library
Avenue, Suite 204, P.O. Box 885, Newark, Delaware 19715.

Investors should contact us for any inquiries
through the address and telephone number of our principal executive offices. Our website is http://www.cloudary.com.cn. The information contained on our website does not constitute a part of this prospectus.

We currently estimate that the initial public offering price will be between US$ and
US$ per ADS.

Option to purchase additional ADSs

We and the selling shareholder have granted the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase an aggregate of
additional ADSs.

Ordinary shares

Our ordinary share capital consists of Class A and Class B ordinary shares. Holders of Class A ordinary shares and Class B ordinary shares have the same
rights except for voting and conversion rights. Each Class A ordinary share shall be entitled to ten votes on all matters subject to shareholders vote, and each Class B ordinary share shall be entitled to one vote on all matters
subject to shareholders vote. Each Class A ordinary share is convertible into one Class B ordinary share at any time by the holder thereof. Class B ordinary shares are not convertible into Class A ordinary shares under any
circumstances.

Series A preference shares

Holders of Series A-1 and Series A-2 preference shares, or our Series A preference shares, have the same rights as holders of our ordinary shares, except for
the rate of cash dividends. Each Series A preference share is convertible into one Class A ordinary share, subject to anti-dilution adjustments, at any time after the issuance date. Holders of the Series A preference shares are
entitled to receive cash dividends at the rate of 2.09% in respect of Series A-1 preference shares and of 2.40% in respect of Series A-2 preference shares per annum prior and in preference to the shareholders of our ordinary shares and to
participate pro rata in any dividend paid on our ordinary shares on an as-converted basis. Each Series A preference share is entitled to ten votes per share and shall have full voting rights and powers equal to those of the shareholders of
Class A ordinary shares. See Description of Share Capital  History of Securities Issuances and Transfers  Series A Preference Shares on page 174 of this prospectus for a detailed discussion of the
terms of our Series A preference shares. Immediately following the completion of this offering, Shanda Investment intends to convert all of the Series A preference shares it currently holds into our Class A ordinary shares on a
one-for-one basis.

The depositary will hold the Class B ordinary shares underlying your ADSs and you will have rights as provided in the deposit agreement.

We do not expect to pay dividends in the foreseeable future. If, however, we declare dividends on our Class B ordinary shares, the depositary
will pay you the cash dividends and other distributions it receives

on our Class B ordinary shares, after deducting its fees and expenses in accordance with the terms set forth in the deposit agreement.

You may surrender your ADSs to the depositary to be cancelled in exchange for Class B ordinary shares. The depositary will charge you fees for
any cancellation.

We may amend or terminate the deposit agreement without your consent. If you continue to hold your ADSs, you agree to be bound by the deposit
agreement as amended.

To better understand the terms of the ADSs, you should carefully read the Description of American Depositary Shares section of this
prospectus. You should also read the deposit agreement, a form of which is filed as an exhibit to the registration statement that includes this prospectus.

ADSs outstanding immediately after this offering

ADSs (or ADSs if the
underwriters exercise the option to purchase additional ADSs in full).

We expect that we will receive net proceeds of approximately US$ million from this offering
(after deducting underwriting discounts, commissions and estimated offering expenses payable by us). We anticipate using the net proceeds we receive from this offering to finance our business expansion, including for the purpose of content
acquisitions, and sales and marketing initiatives, to repay all of our outstanding long-term borrowings from Shanda Interactive and its affiliates in the amount of RMB434.8 million (US$69.0 million) as of March 31, 2012 and to fund working capital
as well as for other general corporate purposes, including financing potential strategic acquisitions and investments. We will not receive any proceeds from the sale of ADSs by the selling shareholder. See Use of Proceeds for more
information.

Listing

The ADSs have been approved for listing on the New York Stock Exchange, or the NYSE.

NYSE symbol

READ

Depositary

JPMorgan Chase Bank, N.A.

Lock-up

We, our directors and executive officers, and our existing shareholders have agreed with the underwriters for a period of 180 days after the date of this prospectus not
to sell, transfer or otherwise dispose of, and not to announce an intention to sell, transfer or otherwise dispose of any of our ADSs or shares or securities convertible into or exercisable or

exchangeable for our ADSs or shares. Furthermore, all of our directors, executive officers and existing shareholders are restricted by our agreement with the depositary from depositing ordinary
shares in our ADS program or having new ADSs issued during the same period. See Underwriting for more information.

Reserved ADSs

At our request, the underwriters have reserved for sale, at the initial public offering price, up to an aggregate
of ADSs, to our directors, officers, employees, business associates and related persons through a directed share program.

Timing and settlement for ADSs

The ADSs are expected to be delivered against payment on or about , 2012. They will be deposited
with a custodian for, and registered in the name of a nominee of, The Depository Trust Company, or DTC, in New York, New York. In general, beneficial interests in the ADSs will be shown on, and transfers of these beneficial interests will be
effected through, records maintained by DTC and its direct and indirect participants.

Risk factors

See Risk Factors and other information included in this prospectus for a discussion of risks you should carefully consider before investing in the ADSs.

The number of shares that will be outstanding immediately after this offering:



is based upon ordinary shares (including Class A and Class B
ordinary shares outstanding as of the date of this prospectus and Class B ordinary shares issued in this offering) and 11,313,150 Series A preference shares (including
3,916,393 Series A-1 preference shares and 7,396,757 Series A-2 preference shares) outstanding as of the date of this prospectus, which will be converted into our Class A ordinary shares on a one-for-one basis immediately after
this offering;



assumes that the underwriters do not exercise their over-allotment option to purchase additional ADSs;



excludes 18,772,500 Class B ordinary shares issuable upon the exercise of stock options issued under our 2010 Equity Compensation Plan that are
outstanding as of the date of this prospectus, at a weighted average exercise price of US$1.80 per share; and

The following summary consolidated financial data for the periods and as of the dates indicated are qualified in their
entirety by reference to, and should be read in conjunction with, our consolidated financial statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations, both of which are
included elsewhere in this prospectus.

The summary consolidated statements of operations data and summary
consolidated cash flows data presented below for the fiscal years ended December 31, 2009, 2010 and 2011 and the summary consolidated balance sheet data as of December 31, 2010 and 2011 have been derived from our audited consolidated
financial statements included elsewhere in this prospectus. The summary consolidated statements of operations data and summary consolidated statements of cash flows data presented below for the fiscal year ended December 31, 2008 and the summary
consolidated balance sheet data as of December 31, 2009 have been derived from our audited consolidated financial statements which are not included in this prospectus. The summary consolidated statements of operations data and summary consolidated
statements of cash flows data presented below for the three months ended March 31, 2011 and 2012 and the summary consolidated balance sheet data as of March 31, 2012 have been derived from our unaudited condensed consolidated financial
statements included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2008 has been derived from our unaudited condensed consolidated financial statements which are not included in this prospectus.

We have prepared the unaudited condensed consolidated financial statements on the same basis as our audited
consolidated financial statements. The unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of our financial position and
results of operations for the periods presented. Our audited consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.

We have not included financial information for the year ended December 31, 2007 as such information is not available
on a basis that is consistent with the consolidated financial information for the years ended December 31, 2008, 2009, 2010 and 2011 and cannot be provided on a U.S. GAAP basis without unreasonable effort or expense.

Our historical results are not necessarily indicative of our results to be expected for any future period.

For a description of the pro forma adjustments used to calculate pro forma loss per share for the year ended December 31, 2011, see
Note 26  Unaudited Pro Forma Loss Per Share for Conversion of Series A Preferred Shares and Repayment of Long-Term Borrowings to our consolidated financial statements included elsewhere in this prospectus.

For a description of the pro forma adjustments used to calculate pro forma earnings per share for the three months ended March 31, 2012, see
Note 25  Unaudited Pro Forma Balance Sheet and Earnings Per Share for Conversion of Series A Preferred Shares to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

(2)

Pro forma basis reflects the conversion of all outstanding Series A preference shares on a one-for-one basis into an aggregate of
11,313,150 Class A ordinary shares immediately following the completion of this offering.

Investing in our ADSs involves a high degree of risk. You should carefully consider the risks described below with all
of the other information included in this prospectus before deciding to invest in our ADSs. If any of the following risks actually occur, they may materially harm our business, financial condition, results of operations and prospects. In this event,
the market price of our ADSs could decline, and you could lose some or all of your investment.

Risks Related to Our
Business

We incurred net losses in 2009, 2010 and 2011 and had net operating cash outflows in 2009 and 2010 and may
continue to incur losses and cash outflows in the future.

We incurred net losses in 2009, 2010 and
2011, primarily due to copyright licensing cost, head-count related expenses and sales and marketing expenses required to ramp up our operations in the early stages of the development of our business. We also incurred net operating cash outflows in
2009 and 2010, primarily due to our net losses during the same periods and increases in inventory in connection with the commencement of our offline publishing business or the increase in accounts receivable from third-party wireless carriers. See
 Our business, financial condition, results of operations and cash flows may be materially and adversely affected if we are unable to efficiently manage our inventory and other risks with respect to our offline publishing business.
Our ability to achieve profitability is affected by various factors, some of which are beyond our control. In addition, we expect our future revenues and profitability to also depend partly on the continued popularity and growth of the online and
mobile literature industries in China. User attention and spending on online and electronic literary content may not continue to increase or may not continue to increase at the rates that they have in the past.

We may also incur cash obligations that affect our net liquidity position and cause us to incur further net cash outflows.
For instance, under two acquisitions we made in 2010, we may be required to purchase the remaining equity holdings from the selling shareholders if we fail to complete this offering within an agreed-upon time period or fail to reach agreement on
other terms. In addition, some of the acquisition agreements contain a general provision which calls for the parties, prior to or in the event of our initial public offering, to engage in good faith discussions and enter into new agreements under
which the original shareholders can exchange their remaining interests in the acquired entities for our shares or options to acquire our shares. In the event we reach agreement with any of the original shareholders to acquire his remaining interest
in cash, we may incur additional cash obligations that could affect our net liquidity position. See We may be subject to potential disputes on certain provisions of the agreements we entered into to acquire some of our online or offline
businesses, which could have a material adverse effect on our financial condition and results of operations. We may also continue to incur net losses in the future due to changes in the macroeconomic and regulatory environment, competitive
dynamics and our inability to respond to these changes in a timely and effective manner.

We derived approximately 53.8%, 46.2%, 55.3% and 59.1% of net revenues from monetizing our proprietary literary content
including payment from online paid users, wireless services and copyright licensing, in 2009, 2010, 2011 and the three months ended March 31, 2012, respectively. Copyright licensing cost relating to our online business has historically accounted for
the largest portion of our cost of revenues. In 2009, 2010, 2011 and the three months ended March 31, 2012, copyright licensing cost relating to our online business constituted approximately 54.9%, 37.4%, 42.7% and 46.0%, respectively, of our total
cost of revenues. Due to the improving monetization prospects of original literary content, there is increasing competition for popular literary content. In addition, as the market develops, the expectations of copyright owners, distributors and
industry associations may continue to rise, and as such, they may demand higher licensing fees for such content. As a result, we expect our copyright licensing cost to increase on an absolute basis as we expand our literary content library. If we
cannot successfully offset our

increased copyright licensing cost with an increase in net revenues, our gross margin, financial condition and results of operations could be materially and adversely affected. Therefore,
although we expect our net loss to decrease as a percentage of our total net revenues in the foreseeable future, we may continue to incur net losses in the future due to our continued spending in acquiring new literary content.

The online and mobile literature industries in China and user acceptance of our literary content may not grow as quickly as
expected, which may adversely affect our revenues and business prospects.

Our business and prospects
depend on the continuing development of the online and mobile literature industries in China. Our platform includes six original literature websites and also connects with third-party content providers and content distribution channels. The online
and mobile literature industries have experienced substantial growth in recent years both in terms of users and content. We cannot assure you, however, that the online and mobile literature industries will continue to grow as rapidly as they have in
the past. With the development of technology, new forms of business models may emerge and render online literature websites and mobile literature services less attractive to users. Growth of the online and mobile literature industries is affected by
numerous factors, such as users general online or wireless literature experience, technological innovations, development of Internet and digital media-based services, regulatory changes, especially regulations affecting copyrights, Internet
and digital media-based services, and the macroeconomic environment. In particular, because our online literature business is transforming traditional content creation models and is therefore not easily understood by casual observers, our business
and reputation may be vulnerable to poor perception. For example, perception that the quality of our online content may not be the same as or better than that of other published Internet content, even if baseless, can damage our reputation. Also,
any negative media publicity about online or mobile literature industries or security problems of other online literature websites in China may materially and adversely affect user perception of the online and mobile literature industries, which
could harm our ability to attract and retain users, advertisers and authors.

In addition, although the use of
personal computers and mobile phones in China has increased significantly in recent years, their penetration rates are still much lower than those in the United States. If Internet and wireless connectivity in China and in particular, the online and
mobile literature industries in China do not grow as quickly as expected or if we fail to benefit from such growth by successfully implementing our business strategies, our business and prospects may be adversely affected.

Our online and mobile literature businesses depend heavily on the market recognition and reputation of our brands, and any harm to
our brands or failure to maintain and enhance our brand recognition may materially and adversely affect our business, financial condition and results of operations.

We believe that the market recognition and reputation of our brands such as qidian.com, rongshuxia.com, hongxiu.com
and Cloudary have significantly contributed to the success of our online and mobile literature businesses. Maintaining and enhancing the recognition and reputation of our brands are critical to our success and ability to compete. Many
factors, some of which are beyond our control, are important to maintaining and enhancing our brands and may negatively impact our brands and reputation if not properly managed, such as:



our ability to maintain a convenient and reliable user experience as user preferences evolve and as we expand into new service categories and new
business lines;



our ability to increase brand awareness among existing and potential authors and advertisers through various means of marketing and promotional
activities;



our ability to adopt new technologies or adapt our websites and our systems to user requirements or emerging industry standards; and



our ability to effectively control the quality of third-party merchants, including telecommunication operators, and to monitor service performance
of such third parties as we continue to attract new authors and to integrate literary content sourcing and distribution channels through our platform.

If we are unable to maintain our reputation, further enhance our brand
recognition and increase positive awareness of our websites, our results of operations may be materially and adversely affected.

Our prospects and financial results may be adversely affected if we fail to attract, identify and retain authors who generate popular content on a scale sufficient to grow our business.

We rely primarily on authors for the literary content that drives the online traffic and transactions
originated from our content. We may not be able to attract, identify and retain promising authors to generate popular literary content on a scale sufficient to grow our business. Our competitors may offer our authors more favorable terms that we are
unable to match. Our authors, especially bestselling authors, may ask for more favorable terms or higher prices for licensing or transferring the proprietary rights of their literary works to us. As membership of our websites is free and registered
users can publish their works without vetting by editors, we cannot guarantee that the content created by our authors will be of sufficient quality to attract users to our platform. Although most of our authors agree to create literary content
exclusively for us for a certain period of time, we cannot control their productivity or the quality of their works produced within the contract term. We cannot be certain that the online authors will continue to prefer to publish their literary
works on our websites, as opposed to in print form. In the event that our authors decrease their production of literary content, we are unable to attract or retain qualified authors or the quality of such contributions is not sufficiently attractive
to our readers or to drive traffic to our platform, we may incur substantial costs to procure suitable replacement content, which could have a negative impact on our business, revenues, financial condition and results of operations.

Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property
rights, may adversely affect our business and competitive position.

Intellectual property is crucial
to our competitiveness and success. We generate revenues from users purchase of our premium content or from licensing such content to online game companies, television and film studios or other content users. Unauthorized use of our premium
literary content may adversely affect our business and reputation. In particular, piracy is a long-standing problem in China, which is evident from pirated books being sold on the street as well as from search results on online search engines. Many
websites in China attract user traffic by making pirated content available for free and derive advertising revenues from such pirated content. Online literary piracy, facilitated by Internet search engines, undermines the paid reading model and has
been the primary impediment to the greater development of Chinas online literature industry. In addition, although our content agreements with authors typically require them to provide us with the exclusive rights to the content they provide
for our websites, we cannot assure you that our authors will not post their literary works on other websites in violation of their agreements with us. Moreover, although our authors are obligated to indemnify us for any losses resulting from
violations of their obligations, we cannot assure you that we will be able to recover such losses from them.

We rely on a combination of copyright, trademark, trade secret and other intellectual property laws, as well as
non-competition, confidentiality and license agreements with our employees, authors, users, business partners or others to protect our intellectual property rights and to meet the obligations we owe to third parties from whom we license intellectual
property rights. Nevertheless, these afford only limited protection and it can be difficult and expensive to police unauthorized use of intellectual property that we own or license. We have taken, and will continue to take, a variety of actions to
combat piracy. Unauthorized use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may materially and adversely affect our business.

Intellectual property rights historically have not been enforced in the PRC as vigorously as in the United States, and
intellectual property theft is a serious risk for companies operating in the PRC. Moreover, we may enforce our intellectual property rights through litigation, which could result in substantial costs, divert the attention and resources of our
management personnel and disrupt our business. The validity and scope of any claims relating to our copyrights or other intellectual property may involve complex legal and factual questions and analyses and, as a result, the outcome may be highly
uncertain. In addition, there is no guarantee that we will be able to detect

unauthorized use of our intellectual property and stop such use through litigation. Failure to protect our intellectual property rights could have a material adverse effect on our business,
financial condition and results of operations as well as severely harm our competitive position.

We and our authors may
be subject to intellectual property infringement or misappropriation claims by third parties, which may force us to incur substantial legal expenses and, if determined adversely against us or our authors, may materially disrupt our business.

Although we have adopted screening, monitoring and content removal procedures to comply with
third-party intellectual property rights and PRC laws and regulations, given the volume of literary content made available through our platform, we may not be able to identify and remove all potentially infringing content. Accordingly, we have been
and in the future may, from time to time, be exposed to intellectual property rights infringement or misappropriation claims by third parties, including competitor online literature website operators such as sursen.com, relating to the
literary content posted on our websites or published through our offline business. We also have been and in the future may be subject to litigations involving claims of copyright infringement or violation of other intellectual property rights of
third parties. As a publicly listed company, we may be exposed to increased risk of litigation. In particular, some literary works posted on certain of our literature websites prior to our acquisition of such websites may infringe the copyrights or
other intellectual property rights of third parties. Although we have removed such literary works from such websites, we cannot assure you that there will not be any intellectual property rights infringement or misappropriation claims by any third
parties in the future. In addition, our authors could post content to our websites that violates others intellectual property rights, including third-party contractual rights such as situations where, without our knowledge, an author has
signed an agreement to provide content to another website but posts such material on our websites. Although we require our authors to represent that they have the right to their content before posting it on our websites and require authors with whom
we sign content agreements to indemnify us against any violations of their contractual obligations with us, we cannot assure you that intellectual property right infringements or misappropriation claims resulting from our authors violations of
their contractual obligations to us will not occur. Moreover, despite indemnification arrangements with our authors, they may not have the financial resources to fulfill their indemnity obligations to us under any such infringement or
misappropriation claim.

Defending against any of these current or future claims could be both costly and
time-consuming, and could significantly divert the efforts and resources of our management and other personnel. An adverse determination in any such litigation or proceedings to which we may become a party could subject us to significant liability
to third parties, require us to seek licenses from third parties, pay ongoing royalties, or subject us to injunctions prohibiting the distribution and marketing of the relevant literary content. To the extent that licenses are not available to us on
commercially reasonable terms or at all, we may be required to expend considerable time and resources sourcing alternative content, if any, or we may be forced to delay or suspend the sale and distribution of the relevant literary content. We may
incur substantial expenses and require significant attention of management in defending against these third-party infringement claims and responding to adverse publicity, regardless of their merit. Protracted litigation or adverse publicity could
also result in our users or potential users deferring, reducing or cancelling their purchase or subscription of our literary content. In addition, we could face disruptions to our business operations as well as damage to our reputation as a result
of such claims, and our business, financial condition, results of operations and prospects could be materially and adversely affected.

We are dependent upon the cooperation agreements with China Mobile for a significant portion of our revenues.

A significant portion of our revenues is derived from our revenue-sharing arrangements with China Mobile, pursuant to
which we provide content to the central reading station of China Mobile and receive a percentage of the fees paid by China Mobiles users. In 2010, 2011 and the three months ended March 31, 2012, we derived approximately 15.0%, 23.4% and 23.7%,
respectively, of our net revenues from revenue-sharing arrangements with China Mobile with respect to our wireless services. Our agreements with China Mobile typically have a term of one or two years. There can be no assurance that our agreements
with China Mobile will be extended or renewed after

their respective expiration or that we will be able to extend or renew such agreements on terms and conditions favorable to us. If China Mobile breaches its obligations under any of these
agreements or refuses to extend or renew it when the term expires, we may lose all or a portion of the user base of China Mobiles wireless network. Any termination or deterioration of our relationship with China Mobile, and any extension or
renewal after the respective initial term of these agreements on terms and conditions less favorable to us would have a material adverse effect on our business, financial condition and results of operations.

In addition, we rely on the billing statements provided by China Mobile in order to recognize a substantial portion of our
net revenues from wireless services. We may not be able to recognize revenue from wireless services generated through the revenue-sharing arrangements with China Mobile in the period in which the services are performed if we do not receive the
billing statements from China Mobile prior to the date of issuance of our financial statements. Due to the delays in receiving such billing statements, our revenues may fluctuate between periods and may not reflect the actual performance of our
services.

We may be subject to potential disputes on certain provisions of the agreements we entered into to acquire
some of our online or offline businesses, which could have a material adverse effect on our financial condition and results of operations.

We have acquired from third parties all of our websites, except yuncheng.com, and two of our three offline publishing companies. We entered into acquisition agreements with the original
shareholders of these websites or businesses. Some of the acquisition agreements, including the agreements to acquire rongshuxia.com, xxsy.net, tingbook.com and zubunet.com as well as two of our offline businesses Huawen and Zhongzhi,
contain a general provision which calls for the parties, prior to or in the event of our initial public offering, to engage in good faith discussions and enter into new agreements under which the original shareholders can exchange their remaining
interests in the acquired entities for our shares or options to acquire our shares. These provisions cannot be implemented without further details to be agreed upon by the parties. At the time these transactions were entered into, these provisions
were intended to provide liquidity for the original shareholders with respect to their remaining interests in such websites or businesses in the event our shares become publicly listed. Subsequently, we reached a mutual understanding with the
original shareholders to engage in further negotiations approximately three months following the completion of this offering to allow them to exit in the future, either through the issuance of additional shares in exchange for their remaining
interests or the cash purchase of their remaining interests. However, there is no assurance that we will be able to reach agreement with all of the relevant original shareholders in a timely manner or on commercially reasonable terms or at all. To
the extent that we are not able to reach agreement or otherwise resolve the issue in a timely manner, we may face claims, disputes, litigations or other proceedings initiated by such shareholders against us. We may incur substantial expenses and
require significant attention of management in defending against these claims, regardless of their merit. In addition, as certain of the original shareholders remain the key employees of some of these entities including those who operate
xxsy.net, tingbook.com and zubunet.com as well as two of our offline businesses, Huawen and Zhongzhi, failure to reach agreement with them could severely disrupt the business operations and financial performance of these
entities. We could also face damages to our reputation as a result of such claims, and our business, financial condition, results of operations and prospects could be materially and adversely affected.

In the event we reach agreement with any of the original shareholders, we may need to issue additional shares or pay cash
to such shareholders in order to acquire their remaining interests, which will have dilutive impact to our existing shareholders or affect our net liquidity position. In addition, we believe, based on the advice of our PRC counsel, Zhong Lun Law
Firm, the issuance of additional shares pursuant to the new agreements, if any, will not result in non-compliance with the Rules on Mergers and Acquisitions of Domestic Enterprises by ForeignInvestors, or the M&A Rules, because
the M&A Rules do not specifically address such situation. Despite that, we and our PRC counsel cannot assure you that the relevant PRC regulatory authorities will not take a contrary view due to the lack of clear guidance on this point. If any
PRC regulatory authority determines that the share swap arrangement we enter into is in violation of the M&A Rules, the share swap may not be completed and we may be subject to fines or penalties. See Risks Related to Doing Business in
China  The approval of the China Securities Regulatory

Commission, or the CSRC, may be required in connection with our corporate reorganization in 2008 and this offering, and the failure to obtain any required approval could have a material adverse
effect on our business, operating results and reputation and trading price of our ADSs, and also create uncertainties for this offering.

We generate revenues from online advertising. If we fail to retain existing advertisers or attract new advertisers to advertise on our websites or if we are unable to collect accounts receivable
from the advertisers or advertising agencies in a timely manner, our financial condition, results of operations and prospects may be materially and adversely affected.

We generate revenues from online advertising. Online advertising contributed to 14.7%, 5.4%, 5.0% and 8.7% of our net
revenues in 2009, 2010, 2011 and the three months ended March 31, 2012, respectively. We retain existing advertisers and attract new advertisers by maximizing return on their investment. Our large user traffic and desirable user demographic
characteristics provide advertisers with a broad reach and optimal monetization results. However, we cannot assure you that we will continue to maintain a high retention rate of our online advertisers in the future or attract new advertisers
continuously. If our advertisers determine that their expenditures on online literature websites do not generate expected returns, they may allocate a portion or all of their advertising budgets to other advertising channels such as television,
newspapers and magazines and reduce or discontinue business with us. Failure to retain existing advertisers or attract new advertisers to advertise on our websites may materially and adversely affect our business, financial condition, results of
operations and prospects.

We sell our advertising services through third-party and affiliated advertising
agencies, which sell advertising space on our original literature websites to, and collect payments from, relevant advertisers. We typically enter into advertising agreements with various advertising agencies which have good relationships and
maintain longer periods of cooperation with the brand advertisers they represent. If we fail to retain and enhance our business relationships with advertising agencies, we may suffer from a loss of advertisers and our business, financial condition,
results of operations and prospects may be materially and adversely affected. In addition, there has been some consolidation in Chinas online advertising market. If this trend continues, a small number of large advertising agencies may be in a
position to negotiate lower payments or a lesser share of advertising revenue to us in connection with their advertising agency services, which could reduce our gross margin.

The financial soundness of our advertisers and advertising agencies may affect our collection of accounts receivable. We
make a credit assessment of the advertiser and advertising agency to evaluate the collectability of the advertising service fees before entering into an advertising contract. However, we cannot assure you that we are or will be able to accurately
assess the creditworthiness of each advertiser or advertising agency, and any inability of advertisers or advertising agencies to pay us in a timely manner may adversely affect our liquidity and cash flows.

Our business, financial condition, results of operations and cash flows may be materially and adversely affected if we are unable
to efficiently manage our inventory and other risks with respect to our offline publishing business.

We must anticipate the marketability of our offline publications before selling them to readers. Due to the sales model
that is generally adopted in the publishing business in China, we face risks associated with having a relatively long selling and collection cycle for our offline publications that requires us to make significant resource commitments prior to
realizing revenues. Under the agreements we typically enter into with chain and online bookstores and wholesalers, we are required to deliver our books with no or limited upfront payments from the bookstores and wholesalers. We deliver the books
substantially on consignment basis and only receive payments from the bookstores and wholesalers based on sales orders confirmed by both parties. Therefore, our selling and collection cycle, which generally ranges from three to eight months
depending on the internal management of the bookstores or wholesalers, is subject to many risks and delays over which we have little or no control, including readers preferences and the creditworthiness of the bookstores or wholesalers. In
addition, under this business model, we also incur increased inventory risks if the bookstores and wholesalers are unable to sell our books in a timely manner or return unsold publications to us. If we are unable to correctly predict demand for our
books, we will be responsible for covering the cost of the books that we are unable to sell, and our financial condition, results of operations and cash flows would be adversely affected.

Our online business is highly regulated in China. The lack of requisite licenses or
permits applicable to our business and any changes in government policies or regulations may have a material and adverse impact on our business, financial condition and results of operations.

Our online business is subject to governmental supervision and regulations by the relevant PRC regulatory authorities
including the State Council, the Ministry of Industry and Information Technology (formerly known as the Ministry of Information Industry), or the MIIT, the Ministry of Culture, or the MOC, the General Administration of Press and Publications, or the
GAPP, the State Administration of Radio, Film and Television, or the SARFT, the State Internet Information Office and other relevant government authorities. These government authorities together promulgate and enforce laws and regulations that cover
many aspects of telecommunications and Internet information services and the publishing industry, including entering into the telecommunications or publishing industry, the scope of permitted business activities, and licenses and permits for various
business activities and foreign investment. For example, each of our websites is required to obtain a license for operating Internet information services as an Internet Content Provider, or an ICP, from the MIIT or its provincial branches. See
Regulation  Regulation of Telecommunication and Internet Information Services. We are also required to obtain an Internet transmission audio-visual program license from the SARFT for our online audio literature business that
we operate through tingbook.com. See Regulation  Regulation of Online Transmission of Audiovisual Programs. We are in the process of applying for (i) the ICP licenses for five websites, including yuncheng.com,
that are operated by us and (ii) the Internet transmission audio-visual program license for tingbook.com. In addition, ICPs which engage in online cultural activities, including dissemination, publishing and broadcasting of online cultural
content (such as audiovisual products and games), may be required to obtain a permit from the provincial branches of the MOC. We cannot assure you that we will be able to obtain such licenses or permits in a timely manner or at all. If we fail to
obtain such licenses or permits for the forgoing websites or other competent PRC regulatory authorities consider that we are operating the relevant businesses in an illegal manner, we may be ordered to shut down the relevant websites or cease the
relevant services. We may also be liable for fines or a penalty of confiscating illegal gains.

Furthermore,
under current regulations issued by the GAPP and the MIIT, we are required to obtain an Internet publishing license from the GAPP in order for us to operate any Internet-related publication business, including our online literary content creation,
distribution, licensing and publishing activities. See Regulation  Regulation of Internet Publication. We obtained an Internet publishing license in 2008 for the Internet and mobile literature publishing activities of
qidian.com, which contributed 64.2% of our net online revenues in 2011. We are in the process of (i) applying for the requisite Internet publishing license for all of our other websites, including yuncheng.com, and
(ii) amending or obtaining the Internet publishing license for qidian.com to cover its web-based game business. We believe that there are no legal obstacles preventing us from amending and/or obtaining such licenses if we abide by all
the conditions and procedures provided in the relevant PRC laws and regulations. Under relevant PRC laws and regulations, a decision on the application for an Internet publishing license is made within 60 days of the competent authorities
receiving the complete application. However, the approval process may significantly differ or take longer in practice, and due to the lack of any public and detailed interpretations and implementations of the conditions and procedures by the
relevant PRC regulatory authorities, we cannot assure you that we will be able to obtain the Internet publishing licenses in a timely manner or at all. If the GAPP and other competent PRC regulatory authorities consider that we were operating
without proper license or approval, they may, among other things, levy fines, confiscate our income, revoke our businesses and require us to discontinue our business or impose restrictions on the affected portion of our business.

We also engage in online advertising businesses. We currently are not required to obtain the advertisement permit to
operate our advertising business, but need to include advertising services in the business scope specified in our business licenses, based on our oral consultation with the State Administration for Industry and Commerce, or the SAIC, and its
relevant local branches. We are in the process of amending our business licenses to include advertising business. However, we cannot assure you that we can complete such process in a timely manner or at all, or will not be required to obtain the
advertisement permit in the future and will succeed in obtaining such permit when required.

In addition, the PRC government may promulgate new laws and regulations that
require additional licenses or imposes additional restrictions on the operation of any part of our business. Any of these actions may have a material and adverse effect on our results of operations.

We rely on the publishing licenses of third-party publishers for our offline publications. If such third-party publishers cease to
cooperate with us on commercially acceptable terms or at all, or if the PRC regulatory authorities find such cooperation arrangements to be in violation of PRC laws and regulations governing the publishing industry, our offline business will be
materially and adversely affected.

Under relevant PRC laws and regulations, only entities with a valid
publishing license granted by the GAPP are permitted to publish books or other publications in printed form in China. The GAPP ensures compliance with such laws and regulations through granting International Standard Book Numbers, or ISBNs, which
are necessary for printing books in China, exclusively to those publishers that own publishing licenses. Such publishers are not allowed to sell or otherwise transfer their ISBNs to any third parties. Although we hold permits for marketing and
distributing publications, we do not have a publishing license. Therefore, we have contracted with several qualified state-owned publishers to assist us in this aspect of the publishing process. Under these agreements, the state-owned publishers are
responsible for reviewing, editing and applying for the necessary ISBNs for, and publishing, the books or other literary content submitted by us. If any of such publishers cease to cooperate with us on commercially acceptable terms or at all and we
are not able to find a suitable alternative partner in a timely manner, we may lose significant business and our offline operations will be materially and adversely affected. Our reliance on the cooperation arrangements with the state-owned
publishers also subjects us to the internal management and financial condition of such publishers. Due to the uncertainties in the interpretation and enforcement of PRC laws and regulations, we cannot assure you that the PRC regulatory authorities
will not find such cooperation arrangements to be in violation of PRC laws and regulations governing the offline publishing industry. To the extent the PRC regulatory authorities find the cooperation arrangements with the state-owned publishers
illegal, we may be required to suspend or cease our current offline business or may be subject to other penalties such as fines, which could amount to five to ten times the illegal gain. As a result, our revenues, business and results of operations
would be materially and adversely affected.

We operate in a highly competitive market, and our competitors may have
various advantages, including the ability to draw upon a greater depth and breadth of resources than those available to us. Our failure to compete successfully in the market could have a material adverse effect on our business, financial condition
and results of operations.

We face formidable competition in every aspect of our business, and
particularly from other companies that seek to provide platform services for literary content creation, consumption and distribution. Our online business competes primarily with other online literature websites in China, such as zongheng.com,
17k.com, zhulang.com and sursen.com. We also compete with Internet portals that offer literary content, such as sina.com, sohu.com and qq.com. We compete with these companies for content, readers, authors,
advertisers and distribution channels. We compete primarily on the basis of the breadth and depth of literary content offered, and services provided to authors, readers, advertisers and distribution channels. In offline publishing, we compete mainly
with private publishing companies in China, such as Beijing Motie Book Co., Ltd., Thinkingdom Media Group Ltd. and Beijing Booky Publishing Inc. We compete with these companies for authors, readers and sales channels. As we further develop our
platform, we compete with other digital content aggregators for content and distribution channels. Our competitors may compete with us in a variety of ways, including by obtaining exclusive online, digital or offline distribution rights for popular
literary content, attracting authors with more favorable contractual terms, conducting brand promotions and other marketing activities, adopting more aggressive pricing or inventory availability policies and making acquisitions. For example, some of
our competitors have in the past offered aggressive compensation and contract terms to attract our contracted authors in order to expand their market shares. Such competition may significantly increase the market price for literary content, cause us
to lose our existing or potential authors and therefore materially and adversely affect our business, financial condition and results of operations.

We may not be able to compete effectively against our competitors in all
respects. In addition, certain online literature websites, digital content providers or offline publishers may continue to offer pirated content for free or at lower prices. As a result, readers may be diverted away from our platform. Further, as
the online and mobile literature industries in China are constantly evolving, our current or future online and mobile literature competitors may compete more successfully as the industry matures. Furthermore, any of our current or future competitors
may be acquired by, receive investments from or enter into other strategic or commercial relationships with larger, more established and better financed companies and therefore obtain significantly greater financial, marketing and licensing and
development resources than we do. If any of our competitors achieves greater market acceptance than we do or are able to offer more attractive literary content or comparable literary content at lower cost, our users and market share may decrease,
which may have a material adverse effect on our business, financial condition and results of operations.

Literary and
other content displayed on our websites or published by us may be found objectionable by PRC regulatory authorities and may subject us to penalties and other administrative actions.

The PRC government has adopted laws and regulations governing the publishing industry, Internet access and distribution of
literary content and other information over the Internet. See  Risks Related to Doing Business in China  Our business may be adversely affected by regulations and censorship of literary and other content distributed over
the Internet or through our offline business in China. In the event that the PRC regulatory authorities find the literary content on our websites or published by us objectionable or otherwise in violation of PRC laws or regulations, and impose
penalties on us or take other administrative actions against us in the future, our business, results of operations and reputation may be materially and adversely affected.

Our users can upload to any of our websites any type of literary content including self-created and third-party-produced
content and can upload certain graphical files for limited purposes, such as updating user biographies. We require our users to confirm before each upload that the content to be uploaded is in compliance with PRC laws and regulations and does not
infringe other parties legal rights, including copyrights, and to indemnify us against all damages arising from third-party claims against us resulting from such uploaded or linked content. However, we have limited control over the content
uploaded by our users and as most of our users are individuals, they may not be able to fully indemnify us for all damages, including regulatory penalties or third-party claims, caused by the content they uploaded. Although we have adopted internal
procedures to monitor the content displayed on our websites, we may not be able to identify all the literary or other content that may violate relevant laws and regulations due to the large amount of literary or other content uploaded by our users
everyday. See Business  Technology, Infrastructure and Internal Operations  Content Monitoring and Copyright Protection for more details relating to our content monitoring procedures. Failure to identify and prevent
illegal or inappropriate content from being displayed on our websites may subject us to liability. In addition, these laws and regulations are subject to interpretation by the relevant authorities, and it may not be possible to determine in all
cases the types of content that could result in our liability as a website operator. For a detailed discussion, see Regulation  Regulation of Content, Information Security and Censorship.

We may be subject to, and may expend significant resources in defending against, government actions and civil suits based on the
advertising content provided in our virtual advertising space; we may also be penalized by the governmental authority for such content.

Under PRC advertising laws and regulations, we are obligated to monitor the advertising content shown on our websites to ensure that such content is true, accurate and in full compliance with applicable
PRC laws and regulations. In addition, where a special government review is required for specific types of advertisements prior to website posting, such as advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary
pharmaceuticals, we are obligated to confirm that such review has been performed and approval has been obtained from competent PRC regulatory authorities. Violation of these laws and regulations may subject us to penalties, including fines,
confiscation of our advertising income, orders to cease dissemination of the advertisements and orders to publish an announcement correcting the misleading information. In circumstances involving

serious violations, such as posting a pharmaceutical product advertisement without approval, or posting an advertisement for a fake pharmaceutical product, PRC regulatory authorities may force us
to terminate our advertising operation or even revoke our business licenses.

A majority of the advertisements
shown on our websites are provided to us by advertising agencies on behalf of advertisers. While significant effort has been made to ensure that the advertisements shown on our websites are in full compliance with applicable PRC laws and
regulations, we cannot assure you that all the content contained in such advertisements is true and accurate as required by the PRC advertising laws and regulations or does not otherwise contain objectionable content in violation of other relevant
PRC laws and regulations. If we are found to be in violation of applicable PRC advertising laws and regulations in the future, we may be subject to penalties and our reputation may be harmed, which may have a material and adverse effect on our
business, financial condition, results of operations and prospects.

We may incur additional costs in order to comply
with third-party rights or PRC laws and regulations governing the publishing industry, Internet access and the distribution of literary, advertising and other content over the Internet, which may materially and adversely affect our business,
financial condition and results of operations.

We have adopted internal procedures to ensure that no
prohibited or pirated literary, advertising and other content is displayed on our websites or included in our content library. All user-posted content or comments are first screened by our proprietary filtering systems and content containing
prohibited words or images is then manually screened and removed. In addition to our professional editors, we also have a separate team dedicated to screening and monitoring the content uploaded to the websites and removing any inappropriate or
allegedly infringing content. We provide training to these employees and supervise their work. If we find a user has violated the user agreement, applicable laws or regulations or third-party rights, including copyrights, we may terminate such
users account and block such users future uploads without prior notice. In addition, we remove the relevant literary content when we are notified or made aware by copyright owners or from other sources of copyright infringement by users,
such as lists of infringing content that the regulatory authorities publish from time to time.

We have a team
in charge of reviewing advertising material, including video commercials, flash animation and pictures, to ensure there is no racist, violent, pornographic or any other improper content before the advertising content is publicly posted on our
websites. We require the advertiser to provide proof of governmental approval if the advertisement is subject to special government review.

We rely on our internal screening team and third-party publishers to screen and monitor our offline publications compliance with third-party rights and PRC laws and regulations. We engage
state-owned publishers to screen and edit our offline publications to ensure that the publications comply with the PRC laws and regulations. The costs of compliance with these regulations and third-party rights may continue to increase as a result
of more content uploaded by our increasing number of users, which may materially and adversely affect our business, financial condition and results of operations.

We may be subject to litigation and regulatory activity under the PRC Anti-Monopoly Law.

China enacted the Anti-Monopoly Law, or the AML, which became effective on August 1, 2008. The AML prohibits certain monopolistic acts which result or could result in the elimination or restriction
of competition, including without limitation, monopolistic agreements, abuse of dominant market position and concentration of businesses that may have the effect to eliminate or restrict competition. We may be deemed to have a dominant market
position in the relevant market by the relevant PRC regulatory authorities due to our current market share. According to the iResearch report, we accounted for a 72.1% of Chinas online literature market in terms of revenues and 57.7% of the
market in terms of user time spent in 2011. If we are deemed (i) to have a dominant market position and (ii) to have abused such dominant market position, the relevant PRC regulatory authority may, at its discretion, confiscate any illegal
gains and impose a fine of 1% to 10% of our revenues in the preceding financial year and impose other penalties.

In addition, pursuant to the AML and the relevant regulations, when a
concentration of businesses occurs and reaches certain thresholds, the relevant entity is required to receive pre-clearance of the Ministry of Commerce, or the MOFCOM. Otherwise, the MOFCOM may suspend the concentration, dispose of shares or assets,
transfer the concentrated business or take any other necessary measures to restore the situation prior to the concentration. The relevant entity may also be held liable for a fine of up to RMB500,000 or any loss or damages to any person due to the
consolidation. See Regulation  Regulations Relating to the PRC Anti-Monopoly Law. Since our establishment, we have acquired various online literature websites and may continue to acquire or merge with other literature-related
enterprises to maintain our leading market position. Complying with the requirements of the AML and the relevant regulations could make completion of our future acquisitions time-consuming, complex and difficult. There are uncertainties as to
whether we will be able to obtain the pre-clearance of the MOFCOM for any acquisition that would trigger the AML. This could delay or hinder our ability to complete future acquisitions and impede our strategy to grow through acquisitions.

If we fail to successfully adopt new technologies or adapt our websites and systems to user and customer requirements
or emerging industry standards, our business, prospects and financial results may be materially and adversely affected.

To remain competitive, we must continue to enhance and improve the responsiveness, functionality and features of our websites and our platform. The Internet and the online and mobile literature industries
are characterized by rapid technological evolution, changes in user requirements and preferences, frequent introductions of new products and services embodying new technologies and the emergence of new industry standards and practices that could
render our existing proprietary technologies and systems obsolete. For example, the number of people accessing the Internet via devices other than personal computers, including mobile phones and other hand-held devices, such as mobile tablets, has
increased in recent years and is expected to continue to increase in the future. Our success will depend, in part, on our ability to identify, develop, acquire or license leading technologies useful in our business, enhance our existing literary
content offering and services, develop new services and technologies that address the increasingly sophisticated and varied needs of our existing and prospective authors, users and advertisers, and respond to technological advances and emerging
industry standards and practices on a cost-effective and timely basis. The development of our websites, our platform and other proprietary technology entails significant technical and business risks. There can be no assurance that we will be able to
use new technologies effectively or adapt our websites, proprietary technologies and transaction-processing systems to user requirements or emerging industry standards. Our third-party partners may find our platform unsuitable for their business
needs. If we are unable to adapt in a cost-effective and timely manner in response to changing market conditions or user requirements, whether for technical, legal, financial or other reasons, our business, prospects, financial condition and results
of operations would be materially adversely affected.

The successful operation of our business and our growth depend
upon the Internet infrastructure and telecommunication networks in China.

We rely on the Internet
infrastructure and fixed line and wireless telecommunication networks in China to provide data communication capacity or to host our servers. Through our cooperation with other distribution channels, such as China Mobile, we allow users to read our
literary content over mobile networks. We intend to offer other value-added services through cooperating with operators of Internet Protocol television, or IPTV, and e-book companies, which will allow users to read literary content through fixed
line or wireless telecommunication networks. Although there are private sector Internet and wireless telecommunication operators in China, almost all access to the Internet or wireless telecommunication is maintained through a limited number of
state-owned telecommunication operators under the administrative control and regulatory supervision of the MIIT. The MIIT or such telecommunication operators may unilaterally change their policies and/or the enforcement of their current policies.
The telecommunication operators may also impose higher service or network fees on us or our third-party service providers. We typically enter into contracts directly or through agencies with the local branches of the principal telecommunication
operators. Such contracts are typically for a term of one year and are renewable subject

to early termination. If we are unable to renew these contracts when they expire or locate alternative telecommunication service providers in a timely manner or on commercially reasonable terms
or at all in the event of any infrastructure disruption or failure or other problems with the Internet infrastructure or the telecommunication networks in China, the quality and stability of our websites and our platform may be affected, which could
have a material adverse effect on our business, financial condition and results of operations.

The proper functioning
of our websites is essential to our online literature business and any failure to maintain the satisfactory performance, security and integrity of such websites will materially and adversely affect our business, reputation, financial condition and
results of operations.

The satisfactory performance, reliability and availability of our websites, our
transaction-processing systems and our network infrastructure are critical to our success and our ability to attract and retain authors and users and maintain adequate user service levels. Any failure to maintain the satisfactory performance,
reliability, security and availability of our network infrastructure, including as a result of natural disasters such as earthquakes and floods, may cause significant harm to our reputation and our ability to retain existing and attract new authors
and other users. We maintain a distributed server network architecture with third-party service providers hosting servers in multiple cities throughout China. We do not maintain full backup for our server network hardware.

Major risks involved in such network infrastructure include any break-downs or system failures resulting in a sustained
shutdown of all or a material portion of our servers, including failures which may be attributable to sustained power shutdowns, or efforts to gain unauthorized access to our systems causing loss or corruption of data or malfunctions of software or
hardware.

In the past, our server network has experienced unexpected outages for several hours and occasional
slower performance in a number of locations in China as a result of failures by third-party service providers. Our network systems are also vulnerable to damage from fire, flood, power loss, telecommunications failures, computer viruses, hacking and
similar events. Any network interruption or inadequacy that causes interruptions in the availability of our literary content or deterioration in the quality of access to our literary content could reduce our readers satisfaction. In addition,
any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunction or loss or corruption of data, software, hardware or other computer equipment, and the
inadvertent transmission of computer viruses could have a material adverse effect on our business, financial condition and results of operations.

We depend on numerous service providers to provide services that are critical to our business, which exposes us to various risks that may materially and adversely affect our reputation, business,
financial condition and results of operations.

We currently use numerous third-party or affiliated
service providers to provide services that are critical to our online businesses. We have engaged third-party or affiliated service providers, including Shanghai Shanda Networking Co., Ltd., or Shanda Networking, and Tianjin Shengjing Trade Co.,
Ltd., or Shengjing, which is controlled by Shanda Computer (Shanghai) Co., Ltd., to provide online billing and payment, customer service, user authentication, pre-paid card marketing and distribution and data support service and Shengyue to sell
advertising space on some of our original literature websites to, and collect payments from, the relevant advertisers. If any of these service providers breaches its obligations under the contractual arrangements to provide such service to our
websites, or refuses to renew these service agreements on terms acceptable to us, or at all, we may not be able to find a suitable alternative service provider or establish our own integrated service platform in a timely manner. Similarly, any
failure of or significant quality deterioration in such service providers service platform or system could materially and adversely affect user perception of our websites and may also result in users reducing visits or cancelling their
subscription or purchase of our literary content. In addition, our websites rely on these service providers customer service representatives as the first point of contact to serve our users. The service providers handle customer requests such
as adding points to accounts with pre-paid cards, retrieving forgotten passwords and recovering lost user accounts, and liaising with our technical team for any content-specific issues. If any of such

service provider fails to address customer service requests properly and in a timely manner, our users may be unable to access our content or attribute any unpleasant experience with their
customer service to us. As a result, our business, financial condition and results of operations could be materially and adversely affected.

A significant challenge to the online literature business is the
secure transmission of confidential information over public Internet networks. Currently, we rely on the online payment services provided by affiliated or third-party service providers for our online literature business. Payments for our online
literary content are made through our own websites and third-party online payment services. In such transactions, maintaining complete security for the transmission of confidential information on our websites, such as credit card numbers and
expiration dates, personal information and billing addresses, is essential to maintaining user confidence. We have limited influence over the security measures of the online payment service providers that we use. In addition, we hold certain private
information about our users, such as their names, addresses, phone numbers and browsing and purchasing records. We may not be able to prevent third parties, such as hackers or criminal organizations, from stealing information provided by our users
to us. Any compromise of our security or third-party service providers security could have a material adverse effect on our reputation, business, prospects, financial condition and results of operations.

In addition, significant capital and other resources may be required to protect against security breaches or to alleviate
problems caused by such breaches. The methods used by hackers and others engaged in online criminal activities are increasingly sophisticated and constantly evolving. Even if we are successful in adapting to and preventing new security breaches, any
perception by the public that online commerce and transactions, or the privacy of user information, are becoming increasingly unsafe or vulnerable to attack could inhibit the growth of online businesses generally, which in turn may reduce our
users confidence and materially and adversely affect our business and prospects.

We rely on chain and online
bookstores and wholesalers for the sale of our offline publications.

Our offline publications are
marketed through chain and online bookstores and wholesalers. We deliver the books substantially on consignment basis and only receive payments from the bookstores and wholesalers based on sales orders confirmed by both parties. We have no control
over the books once they are delivered to, and have limited control over ultimate retail sales by, the bookstores and wholesalers and the retail stores that they operate. We do not own any interest in any online or chain bookstore or wholesaler or
the retail stores they operate and are not involved in their daily operating, financing or other activities. The bookstores and wholesalers are not obligated to work with us on an exclusive basis. Our dependence on chain bookstores and wholesalers
increases their bargaining power and the need for us to maintain good relationships with them. If any bookstore or wholesaler ceases to cooperate with us for any reason and we are not able to find a suitable replacement in a timely manner, we may
lose significant business. Our dependence on chain bookstores and wholesalers also exposes us to risks associated with the internal management, financial condition and creditworthiness of such bookstores and wholesalers. To the extent that these
chain bookstores and wholesalers significantly reduce their orders from us or are unable to pay us in a timely manner, or at all, due to the deterioration of their financial position or other reasons, our sales and revenues would be materially and
adversely affected. In addition, we may have to offer volume-based discounts or more favorable credit terms to the bookstores and wholesalers in the future, which may lower our operating profit. As we rely to a large extent on the bookstores and
wholesalers for the sale of our offline publications, our future growth will also depend on the performance of the bookstores and wholesalers and their ability to expand their business and sales networks. In addition, any consolidation,
restructuring, reorganization or other ownership change in the bookstores and wholesalers may have a material adverse effect on our sales.

We generally enter into framework agreements with the chain bookstores and wholesalers for a term of one to two years, renewable unless otherwise terminated. There is no assurance that we will be able to
renew such agreements on terms that are favorable to us, or at all. In addition, there is no assurance that one or more of these major

chain bookstores and wholesalers will not breach their agreements or fail to comply with their obligations thereunder. In such event or events, our results of operations and cash flows may be
materially and adversely affected.

Our offline business depends on third-party delivery companies to deliver our
publications, and their failure to provide high-quality delivery services to chain bookstores and wholesalers may materially and adversely affect our revenues, costs, inventory and profitability.

We engage third-party delivery service providers for the shipment and delivery of our offline publications to chain
bookstores or wholesalers. Interruptions to or failures in these third parties delivery services could prevent the timely or successful delivery of our publications. These interruptions may be due to unforeseen events that are beyond our
control or the control of these third-party delivery companies, such as inclement weather, natural disasters or labor unrest. If our publications are not delivered on time or are delivered in a damaged state, the bookstores or wholesalers may refuse
to accept such publications and have less confidence in our operations. Our operating expenses and inventory risks will increase if the publications are delivered after the sales season or damaged and the bookstores or wholesalers decide to return
such publications. As a result, our financial condition and market reputation could suffer.

In addition, as
local courier companies tend to be small companies with limited capital resources, they may be more likely to go bankrupt, close down or encounter financial difficulties, in which case we may not be able to retrieve our books in their possession,
arrange for delivery of those books by an alternative carrier, receive the payments they collect for us, or hold them accountable for the losses they cause us. Although we are able to defer some of the payments due to the courier companies in order
to cover the risks associated with potential damages or delay in the delivery, the courier companies may change this policy. We also expect gradual consolidation in the logistics industry, and we may experience disruption to our delivery network in
areas covered by the companies undergoing acquisitions or integration, or we may experience difficulty in negotiating favorable terms with such companies. The occurrence of any of these problems, alone or together, could damage our reputation and
materially and adversely affect our business and results of operations.

If we cannot successfully manage our growth,
including our current strategies to provide application advertising services, to offer literary content on multiple media formats and devices and to further enhance our platform, our business, financial condition, result of operations and prospects
could be materially and adversely affected.

We have been rapidly expanding our operations in recent
years. As part of our growth strategy, we have expanded our business to encompass a more diversified revenue model, including providing in-application advertising services, offering literary content on multiple media formats and devices and further
enhancing our platform. Expansion into these or other new forms of business models presents operating and marketing challenges that are different from those that we currently encounter. We intend to expand our sales and marketing team in order to
penetrate the small to middle-sized advertisers market through our in-application advertising services, but we face competition from existing players within this market who may have more experience and resources. We also intend to integrate
our content offerings and distribution channels through our platform, which enables our existing and potential business partners, including telecommunication operators, IPTV operators and third-party online portals, to source literary content from
our websites or offline publishing business as well as third-party content providers and distribute such content to their own customers on multiple media formats and devices. We cannot assure you that this new business model will be commercially
successful. Even if this new business model is successful, our competitors may replicate our model and offer similar or better services. As a result, profit margins may decrease to the point that our expansion may not prove profitable. If we cannot
successfully address these new challenges and compete effectively in these markets, we may not be able to continue to offer these services, attract a sufficiently large number of users, or recover costs incurred for developing and marketing these
products or services, and our future results of operations and growth strategies could be materially and adversely affected.

Pursuing these and other growth strategies may also require us to expand our operations through internal development efforts and through business cooperation, investments and acquisitions. We may in the
future enter into

cooperative agreements with various third parties. Cooperative agreements with third parties could subject us to a number of risks, including risks associated with sharing proprietary
information, non-performance by the counter-party, and an increase in expenses incurred in establishing new cooperative alliances, any of which may materially and adversely affect our business. To the extent third parties suffer negative publicity
or harm to their reputation from events relating to their business, we may also suffer negative publicity or harm to our reputation by virtue of our association with such third parties.

In addition, as we continue to grow, we must continue to improve our managerial, technical and operational knowledge and
allocation of resources and implement an effective management information system. We cannot assure you that we will not experience issues such as capital constraints, operating difficulties at new operational locations or difficulties in expanding
our existing business and operations. Our expansion plans may disrupt our existing operations and have a material adverse effect on our business, financial condition, results of operations and prospects.

We may not be able to effectively identify or pursue target companies for acquisitions, and even if we complete such acquisitions,
we may not be able to successfully integrate the target companies, which could have a material adverse effect on our business, financial condition, results of operations and prospects.

As part of our business growth strategy, we have completed several acquisitions in recent years and may in the future
acquire companies or websites that we believe can expand our content sourcing and distribution capability and strengthen our technological capacity. Our ability to implement our acquisition strategy will depend on our ability to identify suitable
targets, our ability to reach agreements with them on commercially reasonable terms and the availability of financing to complete acquisitions, as well as our ability to obtain any required shareholder or government approvals. Moreover, companies we
have acquired or may acquire in the future may expose us to new operational, regulatory, market and geographic risks and challenges, including:



difficulties in assimilating the operations, policies and personnel of the target company;



potential loss of key business relationships and the reputations of the businesses we acquire;



the possibility of incurring significant impairment losses related to goodwill and other intangible assets;



uncertainty of entering into markets in which we have limited or no experience and in which competitors have stronger market positions;



unsatisfactory performance of the businesses we acquire;



issues not discovered in due diligence, which may include product quality issues or legal or financial contingencies; and



responsibility for the liabilities associated with the businesses we acquire, including those which we may not anticipate.

Any of these events could disrupt our ability to manage our business, result in our failure
to derive the intended benefits of the acquisitions, cause us to be unable to recover our investments or result in our having to recognize goodwill impairment charges, which could in turn materially and adversely affect our business, financial
condition, results of operations and prospects.

We may need to record impairment charges to earnings if our acquisition
goodwill, investments in affiliate companies or acquired intangible assets are determined to be impaired, which would adversely affect our results of operations.

As part of our business growth strategy, we have acquired and may in the future acquire or invest in online original
literature websites from third parties. We record acquisition goodwill, investments in affiliate companies and acquired intangible assets on our balance sheet in connection with such acquisitions and investments. We are required to review our
acquisition goodwill for impairment at least annually and review our investments in affiliate

companies and acquired intangible assets for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable, including a decline in stock price and
market capitalization and a slowdown in our industry, which may result from the recent global economic slowdown. If the carrying value of our acquisition goodwill, investments in affiliate companies or acquired intangible assets were determined to
be impaired, we would be required to write down the carrying value or to record charges to earnings in our financial statements during the period in which our acquisition goodwill, investments in affiliate companies or acquired intangible assets is
determined to be impaired, which would adversely affect our results of operations.

As a result of Shanda
Investments ownership of our Class A ordinary shares, Shanda Investment will effectively control the outcome of shareholder actions in our company and may take actions that might not be beneficial to you as a holder of our ADSs.

Upon the completion of this offering and assuming the underwriters do not exercise their
over-allotment option to purchase additional ADSs, Shanda Investment, which is a wholly owned subsidiary of Shanda Interactive and the selling shareholder, will beneficially
hold Class A ordinary shares (including 11,313,150 Class A ordinary shares converted from the Series A preference shares it currently holds). As each
Class A ordinary share entitles its holder to ten votes per share, such Class A ordinary shares in the aggregate represent % of the combined total voting rights
in our company. Shanda Investments shareholding, in particular the greater voting rights of Class A ordinary shares it holds, gives it the power to control any actions that require shareholder approval under Cayman Islands law, our third
amended and restated memorandum and articles of association, or our memorandum and articles of association, and the NYSE requirements, including the election and removal of any member of our board of directors, mergers, consolidations and other
business combinations, changes to our memorandum and articles of association, the number of shares available for issuance under equity incentive plans and the issuance of significant amounts of our ordinary shares in private placements. Shanda
Investment could have sufficient voting rights to determine the outcome of all matters requiring shareholder approval even if it should, at some point in the future, hold considerably less than a majority of the combined total of our outstanding
ordinary shares. Shanda Investments voting power may prevent a transaction involving a change of control of us, including transactions in which you as a holder of our ADSs might otherwise receive a premium for your securities over the
then-current market price. Similarly, Shanda Investment may approve a merger or consolidation of our company which may result in you receiving a stake (either in the form of shares, debt obligations or other securities) in the surviving or new
consolidated company which may not operate our current business model and dissenter rights may not be available to you in such an event.

We are dependent on the continued service of our management team, and our business, financial condition and results of operations will suffer greatly if we lose their services.

Our future success depends on the continued service of our key executive officers and other key employees. In particular,
we rely on the expertise, experience and leadership ability of Mr. Tianqiao Chen, our chairman, the chairman, chief executive officer and president of Shanda Interactive and the founder of our online literature business, and Mr. Xiaoqiang
Hou, our chief executive officer. We also rely on a number of key technology officers and staff for the development and operation of our business. In addition, as we expect to focus increasingly on the development of our own business, we will need
to continue attracting and retaining skilled and experienced editors for our online and offline literature businesses to maintain our competitiveness.

If one or more of our key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all and may incur additional expenses to recruit and
train new personnel, our business could be severely disrupted, and our business, financial condition and results of operations could be materially and adversely affected. We do not maintain key-man life insurance for any of our key personnel. In
addition, if any of our executive officers or key employees joins a competitor or forms a competing company, we may lose know-how, trade secrets, suppliers and key professionals and staff. Substantially all of our employees, including each of our
executive officers and key employees, have entered into an employment agreement with us, which contains customary non-compete provisions. Although non-compete provisions are generally enforceable under

PRC laws, PRC legal practice regarding the enforceability of such provisions is not as well-developed as in countries such as the United States. Thus, if we need to enforce our rights under the
non-compete provisions, we cannot assure you that a PRC court would enforce such provisions. Furthermore, since the demand and competition for talent is intense in our industry, particularly for editors for our online and offline literature
businesses, we may need to offer higher compensation and other benefits in order to attract and retain key personnel in the future, which could increase our compensation expenses. We cannot assure you that we will be able to attract or retain the
key personnel that we will need to implement our strategies and achieve our business objectives.

We may have conflicts
of interest with Shanda Interactive and its affiliates. Because of Shanda Interactives controlling ownership interest in our company, we may not be able to resolve such conflicts on terms favorable to us.

Conflicts of interest may arise between Shanda Interactive and/or its affiliates, including Mr. Tianqiao Chen, on the one
hand, and us, on the other, in a number of areas relating to our past and ongoing relationships. In addition to the conflicts of interests we have discussed in other risk factors, potential conflicts of interest that we have identified include the
following:



Our board members or executive officers may have conflicts of interest. Mr. Tianqiao Chen, our chairman,
currently also serves as the chairman, chief executive officer and president of Shanda Interactive. Mr. Danian Chen, our director, currently also serves as a director and the chief operating officer of Shanda Interactive. Ms. Qian Qian Chrissy
Luo, our director, currently also serves as a non-executive director of Shanda Interactive. Ms. Grace Wu, our director, currently also serves as the chief financial officer of Shanda Interactive. As each of Mr. Tianqiao Chen,
Mr. Danian Chen and Ms. Grace Wu is an executive officer of Shanda Interactive, they will respectively need to devote most of their time to the daily operations of Shanda Interactive.

Each of Mr. Tianqiao Chen, Mr. Danian Chen and Ms. Grace Wu also serves as a director of Shanda Games Limited and
Ku6.

Mr. Tianqiao Chen controls Shanda Interactive and thereby indirectly controls shareholder actions in
our company through Shanda Interactive. Also, a majority of our directors and executive officers own shares and/or options to purchase shares in Shanda Games Limited. Shanda Games Limited may continue to grant incentive share compensation to our
board members and executive officers from time to time. These relationships could create perceived or actual conflicts of interest when these persons are faced with decisions with potentially different implications for Shanda Interactive and/or its
affiliates, including Mr. Tianqiao Chen, on the one hand, and us, on the other.

In addition, under the laws of
the Cayman Islands, each of our directors owes a fiduciary duty not to put himself or herself in a position where our interests conflict with his or her personal interest or his or her duty to a third party. Directors are responsible to our company
and not, in the absence of special circumstances, to the shareholders. Should a director breach these duties, that director may be held liable for loss or damage to our company.



Agreements with Shanda Interactive and its affiliates. The various agreements that we entered into with Shanda
Interactive and its affiliates, including the agreement with Shanda Networking relating to their integrated platform services, the agreement with Shengjing relating to sales and promotion of pre-paid cards and the exclusive advertising agency
services agreements with Shengyue relating to sales of advertising space on some of our original literature websites, may be less favorable to us than would be the case if they were negotiated with third parties. Moreover, Shanda Interactive may use
its control over us to prevent us from bringing a legal claim against it in the event of a contractual breach, notwithstanding our contractual rights under the agreements and any other agreement we may enter into with Shanda Interactive and its
affiliates from time to time.



Potential competition with Shanda Interactive and/or its affiliates. Shanda Interactive and/or its affiliates,
including Mr. Tianqiao Chen, may engage in certain transactions or businesses that directly or indirectly

compete with our online and mobile literature businesses. In particular, we rely on integrated platform services provided by Shanda Interactives affiliates, including online billing and
payment, user authentication, customer service, pre-paid card marketing and data support services. Shanda Networking may provide similar services to some of our competitors, which may have a material adverse effect on our business.



Business opportunities. Business opportunities may arise that both we and Shanda Interactive and/or its affiliates,
including Mr. Tiangiao Chen, find attractive, and which would complement our respective businesses. Due to the controlling interest of Shanda Interactive and its leading market position and brand in China, we may not be able to pursue these business
opportunities effectively if Shanda Interactive and/or its affiliates, including Mr. Tianqiao Chen, decides to take advantage of such opportunities themselves.



Developing business relationships with competitors of Shanda Interactive and/or its affiliates. So long as Shanda
Interactive remains our controlling shareholder, we may be limited in our ability to do business with competitors of Shanda Interactive and/or its affiliates, such as other interactive entertainment media companies in China.

Although our company is a standalone entity, we expect to operate, for as long as Shanda
Interactive is our controlling shareholder, as part of the group of Shanda Interactive and its subsidiaries and affiliated entities, or Shanda Group. Shanda Interactive may from time to time make strategic decisions that it believes are in the best
interests of Shanda Group as a whole. These decisions may be different from the decisions that we would have made on our own. Shanda Interactives decisions with respect to us or our business may be resolved in ways that favor Shanda
Interactive and therefore Shanda Interactives own shareholder(s), including Mr. Tianqiao Chen who controls Shanda Interactive, which may not coincide with the interests of our other shareholders. We may not be able to resolve any potential
conflicts, and even if we do so, the resolution may be less favorable to us than if we were dealing with an unaffiliated shareholder. Even if both parties seek to transact business on terms intended to approximate those that could have been achieved
among unaffiliated parties, this may not succeed in practice.

We may not be able to continue to receive the same level
of support from Shanda Interactive and its affiliates.

Our business has benefited significantly from
Shanda Interactives brand name and strong market position in China. In addition, we have benefited from using Shanda Networkings integrated service platform, which provides Shanda Interactives and Shanda Games Limiteds large
number of registered users with access to our literary content, and pre-paid card distribution services provided by Shengjing, which were previously provided by another affiliate of Shanda Interactive. We cannot assure you that we will be able to
continue to receive the same level of support from Shanda Interactive and its affiliates in the future. In addition, we rely on loans in the aggregate outstanding amount of RMB434.8 million from Shanda Interactive extended to us directly or
through its affiliated PRC entity, Shanda Networking, for our business expansion. As of March 31, 2012, we had a US$4.8 million (equivalent to RMB30.2 million) loan outstanding from Shanda Interactive and borrowings of
RMB310.3 million from Shanda Networking, both of which are interest free. If Shanda Interactive or Shanda Networking refuses to renew these loans when they mature on commercially acceptable terms or at all or we are unable to refinance these
loans in a timely manner and on terms that are acceptable to us, our interest costs will increase and our working capital may be materially and adversely affected.

We may be subject to certain obligations, including non-competition obligations, under the agreements entered into between Shanda Interactive and Shanda Games Limited.

Our controlling shareholder, Shanda Interactive, entered into a non-competition agreement with Shanda Games Limited,
pursuant to which Shanda Interactive agreed, for a period of five years commencing July 1, 2008, not to engage, and to cause each other member of the Shanda Group (other than Shanda Games Limited) not to engage, directly or indirectly, in the
online game business anywhere in the world. As we expect to operate as a part of the Shanda Group for as long as Shanda Interactive is our controlling shareholder, we may be subject to such non-competition obligations as well as other obligations
under the agreements entered into between Shanda Inter-

active and Shanda Games Limited. Such obligations may restrict us from engaging in the online game business and other businesses, which may restrict our ability to enter such business and affect
our growth prospects.

We have limited insurance coverage, which could have a material adverse effect on our financial
condition and results of operations.

Unlike insurance companies in more developed markets, insurance
companies in China currently offer a very limited range of insurance products. Other than property and casualty insurance for some of our assets and directors and officers insurance, we do not have insurance to cover our business or interruptions of
our business, litigation or product liability. Furthermore, the cost of insuring against these risks and the difficulties associated with acquiring such insurance on commercially reasonable terms generally make it impractical for us to have such
insurance. Any uninsured occurrence of loss or damage to our property, litigation or business disruption may cause us to incur substantial costs and divert our resources, which could have a material adverse effect on our financial condition and
results of operations.

If we fail to maintain an effective system of internal control over financial reporting, our
ability to accurately and timely report our financial results or prevent fraud may be materially and adversely affected, and investor confidence as well as the trading price of our ADSs may decline significantly.

Upon the completion of this offering, we will become a public company in the United States that will be subject to the
Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F
beginning with our annual report for the fiscal year ending December 31, 2013. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control
over financial reporting is effective, our independent registered public accounting firm may issue a qualified report if it is not satisfied with our internal control over financial reporting or the level at which our internal control over financial
reporting is documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.

Prior to this offering, we have been a private company with limited accounting personnel and other resources to address our internal controls and procedures. Our independent registered public accounting
firm has not conducted an audit of our internal control over financial reporting. However, in connection with the audit of our consolidated financial statements for the fiscal year ended December 31, 2011, we and our independent registered
public accounting firm identified one material weakness in our internal control over financial reporting. The material weakness identified related to insufficient resources with appropriate levels of accounting knowledge and experience to address
complex U.S. GAAP accounting issues, and to prepare and review financial statements and related disclosure under U.S. GAAP.

To remedy the identified material weakness, we have taken several measures, and will take further measures, to improve our internal control over financial reporting. However, we cannot assure you that we
will be able to remediate our material weakness in a timely manner, or at all. In addition, we are not able to estimate with reasonable certainty the costs that we will need to incur to implement the measures designed to improve our internal
controls over financial reporting.

During the course of documenting and testing our internal control
procedures in order to satisfy the requirements of Section 404, we may identify other deficiencies in our internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial
reporting as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have an effective internal control over financial reporting that meets the requirements of
Section 404. If we fail to achieve and maintain an effective internal control environment, we may fail to detect material misstatements in our financial statements and fail to meet our reporting obligations, which would cause investors to lose
confidence in our reported financial information and lead to a significant decline in the trading price of our ADSs. Furthermore, ineffective internal controls over financial reporting could expose us to increased risk of fraud or misuse of
corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.

We are an emerging growth company and may not be subject to requirements
that other public companies are subject to, which could harm investor confidence in us and our ADSs.

On April 5, 2012, President Barack Obama signed into law the Jumpstart Our Business Startups Act (the JOBS
Act). The JOBS Act contains provisions that, among other things, relax certain requirements for qualifying public companies. We are an emerging growth company, as defined in the JOBS Act and, for as long as we continue to be an
emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to emerging growth companies, including an exemption from the requirement to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and an exemption from the requirement to adopt and comply with new or revised accounting standards at the same time as other public companies. We will remain an
emerging growth company up to the last day of the fifth fiscal year following the date of the offering, except that (i) if the market value of our common stock that is held by non-affiliates exceeds US$700 million as of any June 30 before that time,
we would cease to be an emerging growth company as of the following December 31; (ii) if our annual gross revenues exceed US$1 billion during any fiscal year before that time, we would cease to be an emerging growth company as of the end of such
fiscal year; and (iii) if during any three-year period before that time we issue an aggregate of over US$1 billion in non-convertible debt, we would cease to be an emerging growth company upon the date of such issuance.

The JOBS Act provides that an emerging growth company can take advantage of the extended transition period
provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We have elected to take advantage of the extended transition period. As a result of this election, our financial statements may not be comparable to other public companies that comply with the public company
effective dates for these new or revised accounting standards.

We also expect that being a public company and
these new rules and regulations could make it more expensive for us to renew director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also
make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee.

We cannot predict if investors will find our ADSs less attractive because we may rely on these exemptions. If some investors find our ADSs less attractive as a result, there may be a less active trading
market for our ADSs and our ADS price may be more volatile.

You may not be able to rely on our quarterly operating
results as an indication of our future performance because our quarterly operating results may be subject to significant fluctuations.

We may experience significant fluctuations in our quarterly operating results due to a variety of factors, many of which are beyond our control. Significant fluctuations in our quarterly operating results
could be caused by any of the factors identified in this section, including, but not limited to:



our ability to retain existing authors and readers, attract new aspiring authors and readers at a steady rate and maintain user satisfaction;



the creation of new original literary works by our authors and the popularity of such literary works;



technical difficulties, system downtime or Internet failures for our websites;



the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations and infrastructure;



the adoption of new, or changes to existing, governmental regulations;



economic conditions in general and specific to the online and mobile literature industries and to China; and



lag time in receiving timely information from our channel partners in respect of our revenues.

As a result, you should not rely on quarter-to-quarter or semi-annual-to-semi-annual comparisons of our operating results
as set forth in this prospectus as indicators of our likely future performance. Our operating results may be below our expectations or the expectations of public market analysts and investors in one or more future quarters. If that occurs, the price
of our ADSs could decline and you could lose part or all of your investment.

If the PRC government finds that the agreements that establish the structure for operating our business in China do not comply with
its restrictions on foreign investment in Internet-based businesses, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in
those operations.

Foreign ownership of publishing and Internet-based businesses is subject to
significant restrictions under current PRC laws and regulations. The PRC government regulates Internet access, the distribution of online literary or other content and the conduct of online commerce through strict business licensing requirements and
other government regulations. These laws and regulations also include limitations on foreign ownership in PRC companies that operate online literature businesses. Specifically, foreign investors are not allowed to own any equity interests in any
entity conducting an online literature business. Since we are a Cayman Islands company and therefore are a foreign or foreign-invested enterprise under PRC laws, neither we nor our PRC subsidiary, Shengting, is eligible to hold a license to operate
an online literature business in China. To comply with PRC laws and regulations, we conduct our operations in China through a series of contractual arrangements entered into among our wholly owned PRC subsidiary, Shengting, our affiliated PRC
entity, Shanghai Hongwen, and Shanghai Hongwens shareholders. Shanghai Hongwen and its subsidiaries hold the licenses that are essential to the operation of our business. See RegulationRegulation of Foreign Ownership Restriction in
Value-Added Telecommunications Industry.

The contractual arrangements with our affiliated PRC entity and
its shareholders enable us to exercise effective control over our affiliated PRC entity and its subsidiaries. We have an exclusive option to purchase all or part of the equity interests in our affiliated PRC entity when and to the extent permitted
by PRC laws. As a result of these contractual arrangements, we are considered the primary beneficiary of our affiliated PRC entity and consolidate the results of operations of our affiliated PRC entity and its subsidiaries in our financial
statements.

In the opinion of Zhong Lun Law Firm, our PRC legal counsel, our current ownership structure, the
ownership structure of our PRC subsidiary and affiliated PRC entity and the contractual arrangements between our PRC subsidiary, our affiliated PRC entity and its shareholders are in compliance with existing PRC laws, rules and regulations. There
are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Accordingly, we cannot assure you that the PRC regulatory authorities will not ultimately take a view contrary to
that of Zhong Lun Law Firm. If we, our PRC subsidiary, or our affiliated PRC entity or its subsidiaries are found to have violated any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in
dealing with such violations, including:



revoking the business licenses or operating licenses of our PRC subsidiary or affiliated PRC entity and its subsidiaries;



discontinuing or restricting our operations in China, including shutting down our servers or blocking our websites or discontinuing or placing
restrictions or onerous conditions on our operations;



confiscating our income or the income of our PRC subsidiary or affiliated PRC entity,



requiring us to undergo a costly and disruptive restructuring such as forcing us to transfer our equity interest in Shengting to a domestic entity
or invalidating the agreements that Shengting has entered into with Shanghai Hongwen and its shareholders;



restricting or prohibiting our use of proceeds from this offering to finance our business and operations in China; and



taking other regulatory or enforcement actions, including levying fines, that could be harmful to our business.

Any of these actions could cause significant disruption to our business operations, including rendering us unable to
(i) access cash and other assets of, (ii) exercise our ownership rights in, and (iii) consolidate our affiliated PRC entity and its subsidiaries, which would have a material adverse effect on the market price of our ADSs.

We rely on contractual arrangements with our affiliated PRC entity and its
shareholders for the operation of our business, which may not be as effective as direct ownership. If our affiliated PRC entity and its shareholders fail to perform their obligations under these contractual arrangements, we may have to resort to
litigation to enforce our rights, which may be time-consuming, unpredictable, expensive and damaging to our operations and reputation.

We rely on contractual arrangements with our affiliated PRC entity, Shanghai Hongwen and its shareholders to operate our business. Although we have been advised by our PRC legal counsel, Zhong Lun Law
Firm, that these contractual arrangements are valid, binding and enforceable under current PRC laws, these contractual arrangements may not be as effective as direct ownership in providing us with control over our affiliated PRC entity and its
subsidiaries. For example, our affiliated PRC entity and its shareholders may breach their contractual arrangements with us by, among other things, failing to operate our online and offline literature businesses in an acceptable manner or taking
other actions that are detrimental to our interests. If we were the controlling shareholder of our affiliated PRC entity with direct ownership, we would be able to exercise our rights as shareholders to effect changes in its board of directors,
which, in turn, could effect changes, subject to any applicable fiduciary obligations, at the management level. However, under the current contractual arrangements, as a legal matter, if our affiliated PRC entity or either of its shareholders fails
to perform its, his or her respective obligations under these contractual arrangements, we may have to incur substantial costs and expend significant resources to enforce those arrangements and rely on legal remedies under PRC laws. These remedies
may include seeking specific performance or injunctive relief and claiming damages, any of which may not be effective.

In addition, if we are unable to enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the process of enforcing these contractual arrangements, our business and
operations could be severely disrupted, which could materially and adversely affect our results of operations and damage our reputation. See  Risks Related to Doing Business in China  Uncertainties presented by the PRC
legal system could limit the legal protections available to us and subject us to legal risks, which could have a material adverse effect on our business, financial condition and results of operations.

Shareholders of our affiliated PRC entity may potentially have a conflict of interest with us, and they may breach their contracts
with us or cause such contracts to be amended in a manner contrary to the interest of our company.

We
conduct substantially all of our operations, and generate substantially all of our revenues, through our affiliated PRC entity and its subsidiaries. Our control over these entities is based upon contractual arrangements with our affiliated PRC
entity and its shareholders that provide us with the substantial ability to control the subsidiaries of our affiliated PRC entity. One of these shareholders, Ms. Dongxu Wang, is an employee of Shanda Interactive and may potentially have a
conflict of interest with us. The other shareholder, Mr. Mingfeng Chen, is an employee of our company. These shareholders may breach their contracts with us or cause such contracts to be amended in a manner contrary to the interest of our
company, if they believe such action furthers their own interest, or if they otherwise act in bad faith. In addition, they may take actions that adversely affect us. If the shareholders of our affiliated PRC entity breach their contracts with us or
otherwise have disputes with us, we may have to initiate legal proceedings, which involve significant uncertainty. Such disputes and proceedings may significantly disrupt our business operations, adversely affect our ability to control our
affiliated PRC entity and otherwise result in negative publicity, and we cannot assure you that the outcome of such disputes and proceedings will be in our favor.

The contractual arrangements with our affiliated PRC entity may be reviewed by the PRC tax authorities for transfer pricing adjustments, which could increase our overall tax liability.

The PRC Enterprise Income Tax Law, effective on January 1, 2008, or the New EIT Law,
requires every enterprise in China to submit its annual enterprise income tax return together with a report on transactions with its related parties to the relevant tax authorities. The PRC tax authorities may impose reasonable adjustments on
taxation if they have identified any related-party transactions that are inconsistent with arms-length principles. We could face

material adverse tax consequences if the PRC tax authorities determined that the contractual arrangements between our PRC subsidiary and affiliated PRC entity and its subsidiaries were not
entered into based on arms-length negotiations and therefore constitute a favorable transfer pricing arrangement. As a result of our corporate structure and the contractual arrangements with our affiliated PRC entity, we are effectively
subject to 5% PRC business tax on net revenues derived from the contractual arrangements with our affiliated PRC entity in addition to our PRC subsidiarys New EIT Law enterprise income tax liability. Although we based our contractual
arrangements on those of similar businesses, if the PRC tax authorities determined that these contracts were not entered into on an arms-length basis, they could request that our affiliated PRC entity adjust its taxable income upward for PRC
tax purposes. Such a pricing adjustment could adversely affect us by increasing our affiliated PRC entitys tax expenses without reducing our PRC subsidiarys tax expenses, which could subject our affiliated PRC entity to late payment fees
and other penalties for underpayment of taxes. As a result, our consolidated net income may be adversely affected.

If
our affiliated PRC entity and its subsidiaries fail to obtain and maintain the requisite assets, licenses and approvals required for the publishing industry and Internet-based businesses in China, our business, financial condition and results of
operations may be materially and adversely affected.

The publishing industry and Internet-based
businesses in China are highly regulated by the PRC government and numerous regulatory authorities of the central PRC government are empowered to issue and implement regulations governing various aspects of the publishing and Internet-based
industries. See Regulation. Our affiliated PRC entity and its subsidiaries are required to obtain and maintain certain assets relevant to their businesses as well as applicable licenses or approvals from different regulatory authorities
in order to provide their current services. These assets and licenses are essential to the operation of our business and are generally subject to annual review by the relevant governmental authorities. Furthermore, as the Internet industry is at an
early stage of development in China, new laws and regulations may be adopted in the future to address new issues that arise from time to time. Our affiliated PRC entity and its subsidiaries may be required to obtain additional licenses to conduct
their businesses under the new laws and regulations. If any of our affiliated PRC entity or its subsidiaries fails to obtain or maintain any of the required assets, licenses or approvals, its continued business operations may be subject to various
penalties, such as confiscation of illegal net revenues, fines and the discontinuation or restriction of its operations. Any such disruption in the business operations of our affiliated PRC entity or its subsidiaries will materially and adversely
affect our business, financial condition and results of operations.

Risks Related to Doing Business in China

Our business, financial condition and results of operations could be materially and adversely affected by a severe
and prolonged global economic downturn and a corresponding slowdown of the PRC economy.

Recent global
market and economic conditions have been unprecedented and challenging and have caused persisting recession in most major economies in 2008 and 2009 and significant market volatility in 2010 and 2011. Continued concerns about the systemic impact of
a potentially long-term and widespread recession, energy costs, geopolitical issues and the availability and cost of credit have contributed to increased market volatility and diminished expectations for economic growth around the world. The
difficult economic outlook has negatively affected business and consumer confidence and contributed to volatility at unprecedented levels. The PRC economy also faces challenges. The stimulus plans and other measures implemented by the PRC government
may not work effectively or quickly enough to maintain economic growth in China or avert a severe economic downturn. Since we derive substantially all of our revenues in China, any prolonged slowdown in the PRC economy could have a material adverse
effect on our business, financial condition and results of operations. Disruptions of the financial markets could also significantly restrict our ability to obtain financing in the capital markets or from financial institutions.

Changes in Chinas economic, political and social conditions could have a
material adverse effect on our business, financial condition, results of operations and prospects.

We
conduct substantially all our business operations in China. Accordingly, our business, financial condition, results of operations and prospects are significantly dependent on the economic, political and social conditions in China. The PRC economy
differs from the economies of developed countries in many aspects, including the degree of government involvement, level of development, growth rate, control over foreign exchange and allocation of resources. While the PRC economy has experienced
significant growth over the past 30 years, the growth has been uneven across different regions and periods and among various economic sectors in China. Moreover, the continued economic growth in China over the past few years has resulted in a
general increase in labor costs, and the inflationary environment that has persisted in recent periods has led to labor strikes and employee discontent, which could result in materially higher compensation costs being paid to employees. We cannot
assure you that the ongoing evolution of economic, political and social conditions in China would not materially reduce our revenues and profitability.

The PRC government exercises significant control over Chinas economic growth through the allocation of resources, control over payment of foreign currency-denominated obligations, implementation of
monetary policy and offer of preferential treatment to particular industries or companies. In particular, certain measures adopted by the PRC government may restrict loans to certain industries, such as changes in statutory deposit reserve ratio and
lending guidelines for commercial banks promulgated by the Peoples Bank of China, or the PBOC. These current and future government actions could materially affect our liquidity as well as restrict our access to capital and ability to operate
our business.

In response to the economic downturn in 2008, the PRC government has adopted various measures
aimed at expanding credit and stimulating economic growth, such as decreasing the PBOC statutory deposit reserve ratio and lowering benchmark interest rates. However, in response to recent higher GDP growth, the PBOC increased the benchmark interest
rates in October and December of 2010 and February, April and July of 2011, which could have a negative impact on the PRC economy. Any slowdown in the economic growth of China could lead to reduced consumable income of our users and reduced demand
for our online or offline literary content, which could materially and adversely affect our business, financial condition, results of operations and prospects.

Uncertainties presented by the PRC legal system could limit the legal protections available to us and subject us to legal risks, which could have a material adverse effect on our business, financial
condition and results of operations.

Our operations in China are subject to applicable PRC laws, rules
and regulations. China has a civil law legal system based on written statutes. Unlike the common law system, court decisions in China may be cited for reference but have limited precedential value. Although the overall effect of legislation over the
past 30 years has significantly enhanced the protections afforded to various forms of foreign investment in China, the PRC has not developed a fully integrated legal system and recently enacted laws, rules and regulations may not sufficiently
cover all aspects of economic activities. In particular, because these laws, rules and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these
laws, rules and regulations involve uncertainties. Such uncertainties may limit the legal protections available to us.

In addition, the PRC legal system is based in part on government policies and certain internal rules, some of which are not published on a timely basis or at all and which may have a retroactive effect.
As a result, we may not be aware of a violation of these policies and internal rules. Also, any administrative or court proceedings may be protracted, resulting in substantial costs and diversion of resources and management attention if we seek to
enforce our legal rights through administrative or judicial proceedings. Moreover, compared to more developed legal systems, the PRC administrative and judicial authorities have significantly wider discretion in interpreting and implementing
statutory and contractual provisions. As a result, it may be more difficult to evaluate the outcomes of the administrative and judicial proceedings as well as the level of available legal protection we are entitled to. These

uncertainties may impede our ability to enforce our contracts, which could in turn materially and adversely affect our business and operations.

Our business may be adversely affected by regulations and censorship of literary and other content distributed over the Internet or
through our offline business in China.

China has enacted laws and regulations governing Internet
access and the distribution of news, information or other content, as well as products and services, through the Internet. China has also enacted laws and regulations regulating the publishing industry. In the past, the PRC government has banned the
distribution of content and information through the Internet or publication of books that it believes to be in violation of the PRC laws and regulations. The MIIT, the GAPP and the MOFCOM have promulgated regulations that prohibit content or
information from being distributed or published if such content or information is found to, among other things, propagate obscenity, gambling or violence, instigate crimes, undermine public morality or the cultural traditions of China, or compromise
state security or secrets. Failure to comply with these requirements may result in the revocation of licenses to provide Internet content or other licenses, the closure of the concerned websites or publishing house and reputational harm. Website
operators may also be held liable for such censored information displayed on or linked to their websites. To the extent that PRC regulatory authorities find any content displayed on our websites or produced in our offline publishing business
objectionable, they may require us to limit or eliminate the dissemination of such content. In addition, regulatory authorities may impose penalties on us based on content displayed on or linked to our websites in cases of material violations,
including a revocation of our operating licenses or a suspension or shutdown of our online operations. See Regulation  Regulation of Content, Information Security and Censorship.

The enforcement of the PRC labor contract law may materially increase our costs and decrease our net income.

China adopted the new Labor Contract Law , or Labor Contract Law, effective on January 1, 2008, and issued its
implementation rules, effective on September 18, 2008. The Labor Contract Law and related rules and regulations impose more stringent requirements on employers with regard to, among others, minimum wages, severance payment and non-fixed-term
employment contracts, time limits for probation periods, as well as the duration and the times that an employee can be placed on a fixed-term employment contract. Due to the limited period of effectiveness of the Labor Contract Law and its
implementation rules and regulations, and the lack of clarity with respect to their implementation and potential penalties and fines, it is uncertain how they will impact our current employment policies and practices. In particular, compliance with
the Labor Contract Law and its implementation rules and regulations may increase our operating expenses. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and
its implementation rules and regulations may also limit our ability to effect those changes in a manner that we believe to be cost-effective or desirable, and could result in a material decrease in our profitability. Furthermore, a significant
number of our employees are contracted through third-party human resources companies that are responsible for managing, among others, payrolls, social insurance contributions and local residency permits of these employees. We may be held jointly
liable if such human resources companies fail to pay such employees their wages and other benefits or otherwise become liable to these employees for labor law violations.

Substantially all of our revenues and operating expenses are denominated in Renminbi. The Renminbi is currently
convertible under the current account, which includes dividends, trade and service-related foreign exchange transactions, but not under the capital account, which includes foreign direct investment and loans. Our PRC
subsidiary may also retain foreign exchange in its current account, subject to a ceiling approved by the State Administration of Foreign Exchange, or SAFE, to satisfy foreign exchange liabilities or to pay dividends. See Regulation

 Regulation of Foreign Currency Exchange and Dividend Distributions. However, the relevant PRC regulatory authorities may limit or eliminate our ability to purchase and retain foreign
currencies in the future. Since a significant amount of our future revenues will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenues generated in Renminbi to fund our
business activities outside of the PRC that are denominated in foreign currencies.

Foreign exchange
transactions under the capital account are still subject to limitations and require approvals from, or registration with, SAFE and other relevant PRC regulatory authorities. In particular, if we finance our PRC subsidiary by foreign currency loans,
those loans cannot exceed certain statutory limits and must be registered with SAFE or its local branches, and if we finance our PRC subsidiary by capital contributions using, for instance, proceeds from our initial public offering, those capital
contributions must be approved by the MOFCOM or its local branches. In addition, because of the regulatory issues related to foreign currency loans to, and foreign investment in, domestic PRC enterprises, we may not be able to finance our affiliated
PRC entity and its subsidiaries operations by loans or capital contributions. We cannot assure you that we can obtain these governmental registrations or approvals on a timely basis, if at all. These limitations could affect the ability of
these entities to obtain foreign exchange through debt or equity financing, and could adversely affect our business and financial conditions.

The approval of the China Securities Regulatory Commission, or the CSRC, may be required in connection with our corporate reorganization in 2008 and this offering, and the failure to obtain any
required approval could have a material adverse effect on our business, operating results and reputation and trading price of our ADSs, and also create uncertainties for this offering.

In 2006, six PRC regulatory agencies, including the MOFCOM and the CSRC, jointly adopted the Rules on Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and were amended on June 22, 2009. See Regulation  Regulation Relating to M&A Rules
and Overseas Listing. Under the M&A Rules, the prior approval of the CSRC is required for the overseas listing of offshore special purpose vehicles that are directly or indirectly controlled by PRC companies or individuals and used for the
purpose of listing PRC onshore interests on an overseas stock exchange. The application of the M&A Rules remains unclear. Currently, there is no consensus among the leading PRC law firms regarding the scope and applicability of the CSRC approval
requirement. Our PRC legal counsel, Zhong Lun Law Firm, has advised us that based on its understanding of the current PRC laws, rules and regulations and the M&A Rules, prior approval from the CSRC is not required under the M&A Rules for the
listing and trading of our ADSs on the NYSE because, among other reasons, (i) Shengting was incorporated as a wholly foreign owned enterprise by means of foreign direct investment rather than merger and acquisition, (ii) we have not
acquired any equity or assets of PRC domestic enterprises owned by our beneficial owners that are PRC enterprises or individuals as defined under the M&A Rules after the effective date of the M&A Rules, and (iii) there is no provision
in the M&A Rules that clearly classifies the contractual arrangements between Shengting and Shanghai Hongwen as a kind of merger and acquisition transaction falling under the M&A Rules. Although we have no plan to apply for approval from the
CSRC based on the advice of Zhong Lun Law Firm, we cannot assure you that the relevant PRC government agencies, including the MOFCOM and the CSRC, would not reach a different conclusion.

Zhong Lun Law Firm has further advised us that uncertainties still exist as to how the M&A Rules will be interpreted
and implemented and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and interpretations in any form relating to the M&A Rules. If the CSRC or other PRC regulatory agency subsequently
determines that we need to obtain CSRC approval for this offering either by interpretation, clarification or amendment of the M&A Rules or by any new rules, regulations or directives promulgated after the date of this prospectus, we may face
sanctions by the CSRC or other PRC regulatory agency. These sanctions may include fines and penalties on our operations in China, limitations on our operating privileges in China, delays or restrictions on the repatriation of the proceeds from this
offering into the PRC, restrictions on or prohibition of the payments or remittance of dividends by our PRC subsidiary, or other actions that could have a material adverse effect on our business, financial condition, results of operations,
reputation and prospects, as well as this offering and the trading price of our ADSs. The CSRC or other PRC regulatory authorities may also take actions

requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered hereby. Consequently, if you engage in market trading or other activities in
anticipation of and prior to settlement and delivery, you do so at the risk that such settlement and delivery may not occur.

We cannot predict when the CSRC will promulgate additional rules or other guidance. If additional rules or guidance is issued prior to the completion of this offering, and, consequently, we conclude that
we are required to obtain the CSRC approval, this offering will be delayed until we obtain the CSRC approval, which may take several months or even longer. Moreover, additional rules or guidance, to the extent issued, may fail to resolve ambiguities
under the M&A Rules. Uncertainties or negative publicity regarding the M&A Rules also could materially adversely affect the trading price of our ADSs.

Our existing contractual arrangements with our affiliated PRC entity and its shareholders may be subject to national security review by the MOFCOM, and the failure to receive the national security
review could have a material adverse effect on our business, operating results and reputation and trading price of our ADSs.

In August 2011, the MOFCOM promulgated the Rules of Ministry of Commerce on Implementation of Security Review System of Merger and Acquisition of Domestic Enterprises by Foreign Investors, or the
MOFCOM Security Review Rules, to implement the Notice of the General Office of the State Council on Establishing the Security Review System for Merger and Acquisition of Domestic Enterprises by Foreign Investors promulgated on
February 3, 2011, or Circular 6. The MOFCOM Security Review Rules became effective on September 1, 2011. See Regulation  Regulations Relating to the MOFCOM Security Review Rules. Under the MOFCOM Security Review Rules, a
national security review is required for certain mergers and acquisitions by foreign investors raising concerns regarding national defense and security. Foreign investors are prohibited from circumventing the national security review requirements by
structuring transactions through proxies, trusts, indirect investments, leases, loans, control through contractual arrangements or offshore transactions. The application and interpretation of the MOFCOM Security Review Rules remain unclear. Our PRC
legal counsel, Zhong Lun Law Firm, has advised us that based on its understanding of the current PRC laws, rules and regulations and the MOFCOM Security Review Rules, we do not need to submit our existing contractual arrangements with our affiliated
PRC entity and its shareholders to the MOFCOM for national security review because, among other reasons, (i) we gained defacto control over our affiliated PRC entity, Shanghai Hongwen, and its subsidiaries in 2008 prior to the
effectiveness of Circular 6 and the MOFCOM Security Review Rules; and (ii) there are currently no explicit provisions or official interpretations indicating that our current businesses fall within the scope of national security review. Although we
have no plan to submit our existing contractual arrangements with our affiliated PRC entity and its shareholders to the MOFCOM for national security review based on the advice of Zhong Lun Law Firm, we cannot assure you that the relevant PRC
government agencies, such as the MOFCOM, would not reach a different conclusion.

Zhong Lun Law Firm has
further advised us that uncertainties exist as to how the MOFCOM Security Review Rules will be interpreted and implemented, and its opinions summarized above are subject to any new laws, rules and regulations or detailed implementations and
interpretations in any form relating to the MOFCOM Security Review Rules. If the MOFCOM or other PRC regulatory agency subsequently determines that we need to submit our existing contractual arrangements with our affiliated PRC entity and its
shareholders for national security review by interpretation, clarification or amendment of the MOFCOM Security Review Rules or by any new rules, regulations or directives promulgated after the date of this prospectus, we may face sanctions by the
MOFCOM or other PRC regulatory agency. These sanctions may include revoking the business or operating licenses of our PRC subsidiary or our affiliated PRC entity and its subsidiaries, discontinuing or restricting our operations in China,
confiscating our income or the income of our PRC subsidiary or our affiliated PRC entity, requiring us to undergo a costly and disruptive restructuring such as forcing us to transfer our equity interest in Shengting to a domestic entity or
invalidating the agreements that Shengting has entered into with our affiliated PRC entity and its shareholders, restricting or prohibiting our use of proceeds from this offering to finance our business and operations in China and taking other
regulatory or enforcement actions, such as levying fines, that could be harmful to our business. Any of these sanctions could cause significant disruption to our business operations, including rendering us unable to access

cash and other assets of, exercise our ownership rights in and consolidate the results of operations of our affiliated PRC entity and its subsidiaries, which would have a material adverse effect
on the market price of our ADSs.

The M&A Rules and the MOFCOM Security Review Rules may make it more difficult for
us to make future acquisitions or dispositions of our business operations or assets in China.

The
M&A Rules have established additional procedures and requirements that could make merger and acquisition activities by foreign companies, such as us, more complex and time-consuming. If the relevant PRC government authorities deem such
activities to be transactions subject to the M&A Rules, we will be required to obtain approval for such transactions from the MOFCOM or its local branches and may be required to divest our PRC subsidiary. In particular, the M&A Rules
require, among other things, that the MOFCOM shall be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if certain
thresholds are met. If we do not seek the necessary approval, we could be subject to administrative fines or other penalties imposed by the relevant PRC authorities. However, because there are no provisions specifying the fines or penalties for such
violations under current PRC laws, rules and regulations, it is uncertain what penalties we may face.

The
MOFCOM Security Review Rules, effective as of September 1, 2011, further provide that when deciding whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to the national security review by the MOFCOM, the
principle of substance-over-form should be applied and foreign investors are prohibited from circumventing the national security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans, control
through contractual arrangements or offshore transactions. If the business of any target company that we plan to acquire falls within the scope subject to national security review, we may not be able to successfully acquire such company by equity or
asset acquisition, capital increase or even through any contractual arrangement.

In the future, we may grow
our business in part by acquiring complementary businesses. Complying with the requirements of the M&A Rules to complete such transactions could be time-consuming, and any approval procedures, including obtaining approval from the MOFCOM or its
local branches, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share, as well as our overall competitiveness.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident
beneficial owners or our company to liabilities or penalties, limit our ability to contribute capital to our PRC subsidiary, limit our PRC subsidiarys ability to increase its registered capital or distribute profits to us, or otherwise
materially and adversely affect us.

SAFE has promulgated several regulations, including the Notice
Concerning Foreign Exchange Controls on Domestic Residents Financing and Roundtrip Investment Through Offshore Special Purpose Vehicles , or Circular 75, effective on November 1, 2005, and Operating Procedures on Foreign Exchange
Administration for Domestic Residents Engaging in Financing and Round-trip Investment via Offshore Special Purpose Vehicles, or Circular 19, effective on July 1, 2011. These regulations and rules require PRC residents and corporate entities to
register with, and obtain approval from, provincial SAFE branches in connection with their direct or indirect offshore investment activities. See Regulation  Regulation of Foreign Currency Exchange and Dividend Distributions.
These regulations and rules apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.

Under Circular 75 and related rules, a PRC resident who makes, or has previously made, a direct or indirect investment in an offshore company is required to register that investment. In addition, any PRC
resident who is a direct or indirect shareholder of an offshore company is required to update the previously filed registration with the relevant provincial SAFE branch to reflect any material change with respect to the offshore companys
roundtrip investment, capital variation, merger, division, long-term equity or debt investment or creation of any security

interest. If any PRC shareholder fails to make the required registration or update the previously filed registration, the PRC subsidiaries of that offshore company may be prohibited from
distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to their offshore parent company, and the offshore parent company may also be prohibited from contributing additional capital into its PRC
subsidiaries. Furthermore, failure to comply with the various foreign exchange registration requirements described above could result in liability under the PRC laws for evasion of applicable foreign exchange restrictions.

We are committed to complying with and to ensuring that our shareholders who are subject to SAFE regulations file the
necessary registrations and amendments required under Circular 75 and related rules. We have requested our relevant shareholders who are subject to SAFE regulations to make the necessary filings. However, we may not be fully informed of the
identities of the beneficial owners of our company. There is no assurance that our shareholders and beneficial owners of our shares who are PRC residents can complete the necessary registrations and amendments under Circular 75 and related rules in
a timely manner or at all, or will comply with the requirements under Circular 75 or other related rules in the future. A failure by any of our shareholders or beneficial owners of our shares who are PRC residents to comply with these regulations
and rules could subject us to fines or legal sanctions, including restrictions on our PRC subsidiarys ability to pay dividends or make distributions to, or obtain foreign currency-denominated loans from, us, as well as restrictions on our
ability to increase our investment in China. As a result, our business and prospects, as well as our ability to distribute profits to you, could be materially and adversely affected.

Our holding company structure may restrict our ability to receive dividends or other payments from our PRC subsidiary and our
affiliated PRC entity, which could restrict our ability to act in response to changing market conditions and to satisfy our liquidity requirements.

As a holding company, we rely principally on dividends from our PRC subsidiary for our cash requirements, including servicing any debt we may incur and obtaining the funds necessary to pay dividends and
other cash distributions to our shareholders and pay our operating expenses. If our PRC subsidiary incurs its own debt in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to
Cloudary Holdings Limited and to us. Furthermore, current PRC regulations permit our PRC subsidiary to pay dividends only out of its accumulated after-tax profits, if any, determined in accordance with applicable PRC laws and regulations and
accounting standards. In addition, our PRC subsidiary is required to set aside a certain amount of its after-tax profits each year, if any, to fund certain statutory reserves, until the accumulative amount of such funds have reached 50% of its
registered capital. See Regulation  Regulation of Foreign Currency Exchange and Dividend Distributions. These reserves, together with the registered equity, are not distributable as cash dividends. As of December 31, 2011, we
had total restricted net assets of RMB124.6 million (US$19.8 million). As a result of these PRC laws, rules and regulations, our PRC subsidiary is restricted in its ability to transfer a portion of its net profits, if any, to us in the
form of dividends. Limitations on the ability of our PRC subsidiary to distribute dividends or make other payments to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our
businesses, pay dividends or otherwise fund and conduct our business. Moreover, although our PRC subsidiary would currently be able to pay dividends in foreign currencies to us without prior approval from SAFE or its local branches by complying with
certain procedural requirements under applicable PRC laws, we cannot assure you that additional restrictions will not be imposed in the future.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using our net proceeds from this offering to make loans or additional capital
contributions to our PRC operating subsidiaries.

As the offshore holding company of our PRC
subsidiary, we may use the net proceeds from this offering to extend loans to our PRC subsidiary or make additional capital contributions to it. Any loans to our PRC subsidiary are subject to the PRC regulations. For example, loans by us to finance
the operations of our PRC subsidiary, which is a foreign-invested enterprise, may not exceed statutory limits and are required to be registered with SAFE. See

Regulation  Regulation of Loans Between a Foreign Company and Its PRC Subsidiaries. We may also decide to finance our PRC subsidiary by means of capital contributions. These
capital contributions must be approved by the MOFCOM or its local branches. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all. If we fail to obtain such approvals, our ability to use our net
proceeds from this offering and to capitalize our operations in China may be severely restricted, and could materially and adversely affect our liquidity and our ability to fund and expand our business.

On August 29, 2008, SAFE promulgated the Circular of Operation Issues Related to the Perfection of Administration
of Payment-Related Settlement of FIEs Registered Capital from Foreign Exchange to Renminbi , or Circular 142, which provided that the registered capital of a foreign-invested company converted from foreign currencies may (i) only be
used for purposes within the business scope approved by the applicable governmental authority and (ii) not for equity investments within the PRC unless otherwise provided. In addition, a foreign-invested company may not change the use of such
registered capital without the prior approval of SAFE or its local branches. Violations of Circular 142 could result in severe penalties, including fines. Circular 142 may significantly limit our ability to transfer the net proceeds from this
offering to our affiliated PRC entity through our subsidiary in China, which may adversely affect the business expansion of our affiliated PRC entity, and we may not be able to convert the net proceeds from this offering into Renminbi to invest in
or acquire any other PRC companies, or establish other variable interest entities in the China. See Regulation  Regulation of Foreign Currency Exchange and Dividend Distributions.

A failure to comply with PRC regulations regarding the registration of shares and share options held by our employees who are PRC
domestic individuals may subject such employees or us to fines and legal or administrative sanctions.

Pursuant to the Implementation Rules of the Administrative Measures on Individual Foreign Exchange and the
Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed Company promulgated by SAFE in 2007 and 2012, respectively, domestic individuals who
have been granted shares or share options by an overseas-listed company according to its equity incentive plan are required, through the PRC subsidiary of such overseas-listed company or other qualified PRC agents, to register with SAFE or its local
branches and complete certain other procedures related to such equity incentive plan. In addition, the overseas-listed company or its PRC subsidiary or other qualified PRC agent is required to appoint an overseas entrusted institution to handle
transactions relating to the equity incentive plan. We and our PRC domestic individual employees who have been granted share options, or PRC option holders, will be subject to these rules upon the listing and trading of our ADSs on the NYSE. If we
or our PRC option holders fail to comply with these rules, we or our PRC option holders may be subject to fines and legal or administrative sanctions, as a result of which our business operations and equity incentive plans could be materially and
adversely affected. See Regulation  Regulation of Employee Stock Options Plan.

We may be subject to
PRC income tax on our worldwide income if we were considered a PRC resident enterprise under the New EIT Law.

Under the New EIT Law, and the Implementation Regulations to the PRC Enterprise Income Tax Law , or the New EIT Law Implementation Regulations, both effective from January 1, 2008, enterprises
established outside of the PRC with de facto management bodies within the PRC are considered a resident enterprise and will be subject to enterprise income tax at the rate of 25% on their worldwide income. The New EIT
Law Implementation Regulations define the term de facto management bodies as establishments that carry out substantial and overall management and control over the production, operation, personnel, accounting, properties,
etc. of an enterprise. The State Administration of Taxation, or the SAT, issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto
Management Bodies , or Circular 82, on April 22, 2009. Circular 82 provides certain specific criteria for determining whether the de facto management body of a Chinese-controlled offshore incorporated enterprise is
located in

the PRC. On July 27, 2011, the SAT issued Administrative Measures on Income Tax of Chinese-controlled Resident EnterprisesIncorporated Overseas (Trial), or Circular 45,
which became effective on September 1, 2011, to supplement Circular 82 and other tax laws and regulations. Circular 45 clarifies certain issues relating to resident status determination. Although Circular 82 and Circular 45 apply only to offshore
enterprises controlled by PRC enterprises or PRC group companies and not those controlled by PRC individuals or foreigners, the determining criteria set forth in Circular 82 and Circular 45 may reflect the SATs general position on how the
de facto management body test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or individuals or foreign enterprises. A substantial
majority of our senior management team is located in China. If we were considered to be a PRC resident enterprise, we would be subject to a PRC enterprise income tax at a rate of 25% on our worldwide income. See Regulations 
Regulation of Taxation.

We may be required to withhold PRC income tax on the dividends we pay you (if any), and
any gain you realize on the transfer of our ordinary shares and ADSs may also be subject to PRC tax if we are treated as a PRC resident enterprise.

Pursuant to the New EIT Law, as described above, we may be treated as a PRC resident enterprise for PRC tax purposes. See
 We may be subject to PRC income tax on our worldwide income if we were considered a PRC resident enterprise under the New EIT Law. If we are so treated by the PRC tax authorities, we may be obligated to withhold PRC
income tax on payments of dividends on our shares and ADSs to investors that are non-resident enterprises of the PRC because the dividends payable on our ordinary shares and ADSs may be regarded as being derived from sources within the PRC. The
withholding tax rate would generally be 10% on dividends paid to non-resident enterprises. In addition, any gain realized by investors who are non-resident enterprises of the PRC from the transfer of our ordinary shares or ADSs may be regarded as
being derived from sources within the PRC and be subject to a 10% PRC tax. See Taxation  PRC Taxation.

Moreover, under the PRC Individual Income Tax Law, or IITL, if we are treated as a PRC resident enterprise, non-resident individual investors would be subject to PRC individual income tax at a rate
of 20% on dividends paid to such investors and any capital gains realized from the transfer of our ordinary shares and ADSs if such dividends and gains are deemed income derived from sources within the PRC. A non-resident individual is an individual
who has no domicile in the PRC and does not stay within the PRC or has stayed within the PRC for less than one year. Pursuant to the IITL and its implementation rules, for purposes of the PRC capital gains tax, the taxable income will be based on
the total income obtained from the transfer of our ordinary shares or ADSs minus all the costs and expenses that are permitted under PRC tax laws to be deducted from the income. If we were considered a PRC resident enterprise and dividends we pay
with respect to our ordinary shares and ADSs and the gains realized from the transfer of our ordinary shares and ADSs were considered income derived from sources within the PRC by relevant PRC tax authorities, such dividends and gains earned by
non-resident individuals would also be subject to PRC tax at a rate of 20% except in the case of individuals that qualify for a lower rate under a tax treaty. Under the PRC-U.S. tax treaty, a 10% rate will apply to dividends provided certain
conditions are met. The foregoing PRC tax may reduce your investment return on our ordinary shares and ADSs and may also affect the price of our ordinary shares and ADSs.

The New EIT Law may affect the availability of preferential tax rates under the special tax arrangement between Hong Kong and mainland China on dividends and interest to be paid by our PRC
subsidiary.

Under the applicable PRC tax laws in effect before January 1, 2008, dividend payments
and interest payments to foreign investors made by foreign-invested enterprises in China were exempt from PRC withholding tax. Under the New EIT Law, starting from 2008, dividends paid by a PRC foreign-invested enterprise to its immediate parent
company outside China are subject to PRC withholding tax at rate of 10%, unless there are applicable treaties that reduce such rate. Under a special arrangement between mainland China and Hong Kong, such dividend withholding tax rate is reduced to
5% and interest withholding rate is reduced to 7% if a Hong Kong resident enterprise owns

over 25% equity interest in the PRC company distributing the dividends or paying the interest. In October 2009, the SAT further issued the Circular on How to Interpret and Recognize the
Beneficial Owner in Tax Agreements , or Circular 601, and certain other related rules. According to Circular 601, non-resident enterprises that cannot provide valid supporting documents as beneficial owners may not be
approved to enjoy tax treaty benefits. Beneficial owners are individuals, enterprises or other organizations that are normally engaged in substantive operations. These rules also set forth certain adverse factors to the recognition of a
beneficial owner. Specifically, they expressly exclude a conduit company, or any company established for the purposes of avoiding or reducing tax obligations or transferring or accumulating profits and not engaged in actual
operations such as manufacturing, sales or management, from being a beneficial owner. As a result, although our PRC subsidiary, Shengting, is currently wholly owned by our Hong Kong subsidiary, Cloudary Holdings Limited, we may not be
able to enjoy the applicable preferential withholding tax rate under the special tax arrangement and therefore be subject to withholding tax at a rate of 10% with respect to dividends and interest to be paid by our PRC subsidiary to our Hong Kong
subsidiary.

The PRC tax authorities enhanced scrutiny of PRC enterprise income tax on offshore equity transfers
may have a negative impact on your investment in our ADSs.

In connection with the New EIT Law, the
Ministry of Finance and the SAT jointly issued, on April 30, 2009, the Notice on Issues Concerning Process of Enterprise Income Tax in Enterprise Restructuring Business , or Circular 59. On December 10, 2009, the SAT issued the
Notice Concerning the Strengthening of Enterprise Income Tax Administration with Respect to Equity Transfers by Non-resident Enterprises , or Circular 698. Both Circular 59 and Circular 698 became effective retroactively as of January 1,
2008. By promulgating and implementing these circulars, the PRC tax authorities have enhanced their scrutiny over the direct or indirect transfer of equity interests in a PRC resident enterprise by a non-PRC resident enterprise. The PRC tax
authorities have the discretion under Circular 698 to make adjustments to the taxable capital gains based on the difference between the fair value of the equity interests transferred and the cost of investment.

Under Circular 698, when a non-PRC resident enterprise directly or indirectly transfers equity interest in a PRC-resident
enterprise and enterprise income tax on the capital gains from such transfer of equity interest is not withheld, such non-PRC tax resident must file with PRC tax authorities and pay tax on the capital gains. Thus, our investors that are non-PRC
resident enterprises may be required by the PRC tax authorities to make a filing upon the transfer of our ADSs or ordinary shares, and may be required to pay PRC tax on gains realized from such transfer at a rate of 10% even if we are not treated as
a PRC resident enterprise.

Fluctuations in the value of the Renminbi could result in foreign currency
exchange losses.

Substantially all of our revenues and operating expenses are denominated in Renminbi,
while the net proceeds from this offering will be denominated in U.S. dollars. Consequently, fluctuations in exchange rates, primarily those involving the U.S. dollar, may affect the relative purchasing power of these proceeds and our
balance sheet and earnings per share in U.S. dollars following this offering. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in
U.S. dollar terms without giving effect to any underlying change in our business, financial condition or results of operations. The Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the long term,
depending on the fluctuation of the basket of currencies against which it is currently valued, or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the Renminbi against the
U.S. dollar.

The hedging options available in China to reduce our exposure to exchange rate fluctuations
are quite limited. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and
effectiveness of these hedges may be limited and we may not be able to hedge our exposure adequately or at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert
Renminbi into foreign currency.

The audit report included in this prospectus was prepared by auditors who are not
inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspections.

Auditors of companies that are registered with the SEC and traded publicly in the United States, including our independent registered public accounting firm, must be registered with the Public Company
Accounting Oversight Board (United States), or the PCAOB, and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Because
our auditors are located in the Peoples Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB. This
lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in China, including our auditors. As a result, investors in our ADSs may be deprived of the benefits of
PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditors audit procedures or quality control procedures as compared to other public company
auditors outside of China that are subject to PCAOB inspections. As a result, investors in our ADSs may lose confidence in our reported financial information and procedures and the quality of our financial statements.

Risks Related to Our ADSs and Class B Ordinary Shares and This Offering

There has been no public market for our ordinary shares or ADSs prior to this offering, and you might not be able to resell our ADSs
at or above the price you paid, or at all.

Prior to this initial public offering, there has been no
public market for our ordinary shares or ADSs. We have applied to have our ADSs listed on the NYSE. Our ordinary shares will not be listed or quoted for trading on any exchange. A liquid public market for our ADSs may not develop. The initial public
offering price for our ADSs will be determined by negotiations between Shanda Investment, us and the representative of the underwriters and may bear no relationship to the market price for our ADSs after the initial public offering. We cannot assure
you that an active trading market for our ADSs will develop or that the market price of our ADSs will not decline below the initial public offering price.

The market price for our ADSs may be volatile and may be materially and adversely affected by fluctuations of the U.S. and global securities markets.

The market price for our ADSs may be volatile and subject to wide fluctuations in response to factors including the
following:

release of lock-up or other transfer restrictions on our outstanding ADSs or ordinary shares or sales of additional ADSs; and



general economic, political or social conditions in China.

In addition, the U.S. and global securities markets have from time to time experienced significant price and volume
fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ADSs.

As the initial public offering price is substantially higher than our net tangible book value per ADS, you will incur immediate and
substantial dilution.

As the initial public offering price is substantially higher than the pro forma
as-adjusted net tangible book value per share, you will incur immediate and substantial dilution. You will experience immediate and substantial dilution of approximately
RMB (US$ ) per ADS (assuming no exercise of outstanding options to acquire ordinary shares),
representing the difference between our pro forma as-adjusted net tangible book value per ADS as of March 31, 2012 (after giving effect to this offering) and the assumed initial public offering price of
US$ per ADS, which is the mid-point of the estimated public offering price range shown on the front cover of this prospectus. If you purchase ADSs in this offering, you
will pay more for your ADSs than the amount paid by existing shareholders for their ordinary shares on a per ADS basis. In addition, you will experience further dilution to the extent that our ordinary shares are issued upon the exercise of share
options. All of the ordinary shares issuable upon the exercise of currently outstanding share options will be issued at a purchase price on a per ADS basis that is less than the initial public offering price per ADS in this offering. You will also
experience dilution if our Class A ordinary shares are issued upon the conversion of our Series A-1 and Series A-2 preference shares at an initial conversion ratio of 1:1 subject to adjustment. See Dilution for a more
complete description of how the value of your investment in our ADSs will be diluted upon the completion of this offering.

We may need additional capital, and the sale of additional ADSs or other equity securities could result in additional dilution to
our shareholders and the incurrence of additional indebtedness could increase our debt service obligations.

We believe that our current cash and cash equivalents, anticipated cash flow from operations and the proceeds from this offering will be sufficient to meet our anticipated cash needs in the next
12 months. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our
cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity and equity-linked securities could result in additional dilution to our shareholders. The incurrence of
indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us,
if at all, particularly in light of the current global economic crisis.

Future sales or issuances, or perceived future
sales or issuances, of substantial amounts of our ordinary shares or ADSs could cause the price of our ADSs to decline significantly.

If our existing shareholders sell, or are perceived as intending to sell, substantial amounts of our ordinary shares or ADSs, including those issued upon the exercise of our outstanding share options,
following this offering, the market price of our ADSs could fall. Such sales, or perceived potential sales, by our existing shareholders might make it more difficult for us to issue new equity or equity-related securities in the future at a time and
place we deem appropriate. Upon the completion of this offering, we will have Class A ordinary shares and
Class B ordinary shares outstanding. All ADSs offered in this offering will be eligible for immediate resale in the public market without restrictions. The
Class B ordinary shares outstanding after this offering may also be sold in the public market in the future, upon the expiration of the 180-day lock-up period beginning from the date of

this prospectus, subject to volume and other restrictions as application under Rule 144 under the Securities Act. Any or all of these shares may be released prior to expiration of the
lock-up period at the discretion of the representative of the underwriters for this offering. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of our ADSs could
decline. Shanda Investment, our parent company and the selling shareholder, is not subject to any contractual obligation to maintain its share ownership in us other than the lock-up obligations described above and in more detail in
Underwriting and will be free to sell its shares in our company after the expiration of the lock-up period, subject to applicable securities law restrictions. See Shares Eligible for Future Sale and
Underwriting for additional information regarding resale restrictions.

Your interest in our ADSs will be
diluted as a result of share option grants or other arrangements which require us to issue additional shares.

In 2010, we established the 2010 Equity Compensation Plan to help us recruit and retain key employees, directors or consultants by providing incentives through the granting of equity awards. Under the
2010 Equity Compensation Plan, we may issue equity awards in the form of share options, restricted shares, or share appreciation rights. The maximum aggregate number of shares that may be issued pursuant to all awards shall not exceed 25,500,000
Class B ordinary shares, assuming full exercise of all awards that may be granted under the plan. For a description of this plan, see Management  Equity Compensation Plan. As of the date of this prospectus, there are
18,772,500 share options outstanding that will entitle their holders to acquire 18,772,500 Class B ordinary shares. In addition, under some of the acquisition agreements we entered into to acquire certain of our businesses and a mutual
understanding we subsequently reached with the original shareholders thereof, we will engage in negotiations with such shareholders approximately three months following the completion of this offering to allow them to exit, including through the
issuance of additional shares of our company or options to acquire shares of our company in exchange for their remaining interests in the acquired entities, which may result in substantial share issuances to these shareholders and substantial
dilution of your shareholdings in the future. The issuance of such shares or share options, if any, or the issuance and exercise of options granted under the 2010 Equity Compensation Plan would result in a reduction in the percentage of ownership of
the holders of ordinary shares and of ADSs, and therefore would result in a dilution in the earnings per ordinary share and per ADS as well as a reduction in your percentage shareholding and voting power. You may face difficulties in protecting your
interests, and your ability to protect your rights through the United States federal courts may be limited, because we are incorporated under Cayman Islands law.

You might not have the same voting rights as the holders of our Class B ordinary shares and might not receive voting materials in time to be able to exercise your right to vote.

Except as described in this prospectus and in the deposit agreement, holders of our ADSs will not be
able to exercise voting rights attaching to the shares evidenced by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee as their representative to exercise the voting rights attaching to the shares
represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to
exercise a right to vote.

Under the deposit agreement for the ADSs, the depositary will give us a
discretionary proxy to vote our Class B ordinary shares underlying your ADSs at a shareholders meeting if you do not vote, unless:



we have failed to timely provide the depositary with our notice of meeting and related voting materials;



we have instructed the depositary that we do not wish a discretionary proxy to be given;



we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;



a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

The effect of this discretionary proxy is that you cannot prevent our Class B ordinary shares underlying your ADSs
from being voted, absent the situations described above, and it may be more difficult for holders of ADSs to influence the management of our company.

Your right as a holder of ADSs to participate in any future rights offerings may be limited, which may cause dilution to your holdings and they may not receive cash dividends if it is impractical to
make them available to such holders.

We may from time to time distribute rights to our shareholders,
including rights to acquire our securities. However, we cannot make rights available to our ADS holders in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from
the registration requirements is available. In addition, the deposit agreement provides that the depositary will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either
registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration
statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our rights offerings and may experience dilution in their
holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these
rights.

In addition, the depositary of our ADSs has agreed to pay to ADS holders the cash dividends or other
distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. ADS holders will receive these distributions in proportion to the number of ordinary shares their ADSs represent.
However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. As a result, the depositary may decide not to make the distribution and ADS holders will not
receive such distribution.

You may be subject to limitations on transfer of your ADSs.

Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any
time or from time to time when it deems necessary in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights
offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. In addition, the depositary
may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it advisable to do so because of any requirement of law or of any
government or governmental body, or under any provision of the deposit agreement.

The voting rights of holders of ADSs
are limited by the terms of the deposit agreement.

A holder of our ADSs may only exercise the voting
rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions of a holder of ADSs in the manner set forth in the deposit agreement, the depositary will endeavor
to vote the underlying ordinary shares in accordance with these instructions. Under our memorandum and articles of association and Cayman Islands law, the minimum notice period required for convening a general meeting is 30 days. When a general
meeting is convened, you may not receive sufficient notice of a shareholders meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents
may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all

reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can
instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast, or for the effect of any such vote. As a
result, you may not be able to exercise your right to vote and you may lack recourse if your ordinary shares are not voted as you requested.

We will be a controlled company within the meaning of the NYSE rules and, as a result, will rely on exemptions from certain corporate governance requirements that provide protection to
shareholders of other companies, and we will also rely on the foreign private issuer exemption from most of the corporate governance requirements under the NYSE rules.

After the completion of this offering, Shanda Interactive will have more than 50% of the total voting rights in our
company and we will be a controlled company under the NYSE rules. As a controlled company, we are not obligated to comply with certain NYSE corporate governance requirements, including the requirements:



that a majority of our board of directors consist of independent directors;



that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing
the committees purpose and responsibilities;



that we have a compensation committee that is composed entirely of independent directors with a written charter addressing the committees
purpose and responsibilities; and



for an annual performance evaluation of the nominating and governance committee and the compensation committee.

We are not required to and will not voluntarily meet these requirements. As a result of our use of the controlled
company exemptions, you will not have the same protection afforded to shareholders of companies that are subject to all of NYSEs corporate governance requirements. In addition, we expect to follow Cayman Islands law instead of the NYSE
requirements that mandate that we obtain shareholder approval for certain dilutive events, such as an issuance that will result in a change of control, certain transactions other than a public offering involving issuances of 20% or greater interests
in the company and certain acquisitions of the shares or assets of another company. We also intend to rely on the foreign private issuer exemption under the NYSE rules that permit a foreign private issuer to follow its home country requirements
concerning certain corporate governance issues, including the requirements that a majority of its board of directors be independent, that it establish a nominating committee and a compensation committee composed entirely of independent directors and
that it have an audit committee with a minimum of three members. For a description of the material corporate governance differences between the NYSE requirements and Cayman Islands law, see Description of Share Capital  Differences
in Corporate Law.

Our multiple-class share structure with different voting rights could discourage others from
pursuing any change of control transactions that holders of our Class B ordinary shares and ADSs may view as beneficial.

Our memorandum and articles of association provide for a multiple-class share structure. Our ordinary shares are divided into Class A ordinary shares and Class B ordinary shares. In addition, we
have Series A-1 and Series A-2 preference shares outstanding. Holders of Class A ordinary shares are entitled to ten votes per share, while holders of Class B ordinary shares are entitled to one vote per share. Each
Series A-1 and Series A-2 preference share is entitled to such number of votes equal to that number of Class A ordinary shares into which that Series A-1 or Series A-2 preference share could then be converted into. As at the
date of this prospectus, each Series A-1 or Series A-2 preference share can convert into one Class A ordinary share. We will issue Class B ordinary shares represented by our ADSs in this offering. Our existing shareholder holds
Class A ordinary shares, each of which is convertible into one Class B ordinary share at any time by the holder thereof. Class B ordinary shares are not convertible into Class A ordinary shares under any circumstances.

Due to the disparate voting rights attached to these classes of shares, our
existing shareholder will have significant voting rights over matters requiring shareholder approval, including the election and removal of directors and certain corporate transactions, such as mergers, consolidations and other business
combinations. This concentrated control could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class B ordinary shares and ADSs may view as beneficial.

There can be no assurance that we will not be a passive foreign investment company, or PFIC, for any taxable year, which could
result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs or Class B ordinary shares.

A non-U.S. corporation will be considered a PFIC for any taxable year if either (i) at least 75% of its gross income is passive income or (ii) at least 50% of the average value of its
assets is attributable to assets that produce or are held for the production of passive income. Passive income generally includes dividends, interest, rents and royalties.

Based upon the projected composition of our income and assets and estimates of the valuation of our assets, including
goodwill, which is based, in part, on the expected price of our ADSs in the offering, we do not expect to be a PFIC for our current taxable year or in the foreseeable future. However, it is not entirely clear how the contractual arrangements between
Shengting, our wholly owned subsidiary, and Shanghai Hongwen, our affiliated PRC entity, will be treated for purposes of the PFIC rules. Moreover, the determination of whether we are a PFIC is an annual test based on the composition of our income
and assets, and the value of our assets from time to time. Because the treatment of the contractual arrangements is not entirely clear and because we have, and expect to continue to have following this offering, a substantial amount of cash and
other passive assets, and because the determination of whether we are a PFIC will depend on the character of our income and assets and the value of our assets from time to time, which may be based in part on the market price of our ADSs, which is
likely to fluctuate after this offering (and may fluctuate considerably given that market prices of Internet companies historically have been especially volatile), we cannot assure you that we will not be a PFIC for our current taxable year or any
future taxable year. If we were a PFIC for any taxable year during which a U.S. person held an ADS or a Class B ordinary share, or the prior taxable year, certain adverse U.S. federal income tax consequences could apply to such
U.S. person. However, even if we are a PFIC, one alternative treatment, which could in certain circumstances help mitigate adverse consequences of PFIC status, a qualified electing fund election, will not be available to U.S. persons
because we do not intend to provide information necessary for U.S. persons to make such an election. See Taxation  United States Federal Income Tax Considerations  Passive Foreign Investment Company Rules.

Our memorandum and articles of association contain anti-takeover provisions that could have a material adverse effect
on the rights of holders of our ordinary shares and ADSs.

Our memorandum and articles of association
that will become effective upon the completion of this offering contain provisions limiting the ability of others to acquire control of our company or cause us to enter into change-of-control transactions. These provisions could deprive our
shareholders of opportunities to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction.

The following provisions in our memorandum and articles of association may have the effect of delaying or preventing a
change of control of our company:



our memorandum and articles of association provides for a multiple-class share structure with disparate voting rights attached to the two classes of
ordinary shares;



our board of directors has the authority, without approval by the shareholders, to issue any unissued shares and determine the terms and conditions
of such shares, including preferred, deferred or other special rights or restrictions with respect to dividend, voting and return of capital;

the shareholders may by ordinary resolution appoint a candidate as director of the board to fill a casual vacancy or as an addition to the existing
board;



the chairman, a majority of our board of directors or shareholder(s) who hold(s) more than 25% of the voting rights of our company having
requisitioned for an extraordinary shareholders meeting at least 21 days previously, have the right to convene an extraordinary shareholders meeting, and the agenda of such meeting will be set by a majority of the directors or the
shareholder(s) who hold more than 25% of the voting rights of our company who request such meeting; and



the amended and restated articles of association may be amended only by a resolution passed at a shareholders meeting by a majority of not
less than two-thirds of the vote cast.

You may have difficulties in bringing an original action based
on the U.S. securities law and enforcing judgments obtained against us in the Cayman Islands or China.

We are a Cayman Islands company and substantially all of our assets are located outside the United States. Substantially all of our current business and operations are conducted in China. In addition,
none of our directors and officers are nationals or residents of countries other than the United States, and a substantial portion of the assets of these persons is located outside the United States. As a result, it may be difficult or impossible
for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. There is doubt as to whether the
Grand Court of the Cayman Islands will, in original actions brought in the Cayman Islands, impose liabilities predicated upon the civil liability provisions of the securities laws of the United States or any state of the United States, on
the ground that such provisions are penal in nature. In addition, because there are no clear statutory and judicial interpretations or guidance on a PRC courts jurisdiction over cases brought under foreign securities laws, it may be difficult
for you to bring an original action against us or our non-U.S. resident officers and directors in a PRC court based on the liability provisions of the U.S. securities laws. Even if you are successful in bringing an action of this kind, the
laws of the Cayman Islands and of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see
Enforceability of Civil Liabilities.

We are a Cayman Islands company and, because judicial precedent
regarding the rights of shareholders is more limited under Cayman Islands law, you may have less protection for your shareholder rights than you would under U.S. law.

Our corporate affairs are governed by our memorandum and articles of association and by the Companies Law, Cap 22
(Law 3 of 1961, as consolidated and revised) and the common law of the Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our
directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as
from English common law, which has persuasive, but not binding, authority in a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as
they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States and provides significantly less protection to investors.

There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although
the courts of the Cayman Islands will generally recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits. For instance, a U.S. court judgment imposing a monetary fine for violation of
U.S. federal securities law is likely to be considered penal in nature and unenforceable in the Cayman Islands. Therefore, our public shareholders may have more difficulties in protecting their interests in the

face of actions by our management, directors or controlling shareholders than would shareholders of a public company incorporated in a jurisdiction in the United States.

In addition, Cayman Islands companies might not have standing to initiate a shareholder derivative action before the
federal courts of the United States. As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would shareholders of a
corporation incorporated in a jurisdiction in the United States.

You might not receive distributions on our ordinary
shares, or any value for them at all, if it is unlawful or impractical for us to make them available to you.

The depositary of our ADSs has agreed to pay you the cash dividends or other distributions it or the custodian for our ADSs receives on our ordinary shares or other deposited securities after deducting
its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, the depositary is not responsible if it is unlawful or impractical to make a distribution available to any
holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed pursuant to an
applicable exemption from registration. The depositary is not responsible for making a distribution available to any holders of ADSs if any government approval or registration is required for such distribution. We have no obligation to take any
other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that you might not receive the distributions we make on our ordinary shares or any value for them if it is unlawful or
impractical for us to make them available to you.

In this prospectus, unless otherwise indicated or the context otherwise requires, references to:



monthly unique visitors refers to the number of unique visitors to a specific website within a given month. Once an individual has
visited a website in a given month, all subsequent visits from the same IP address during such month do not count towards the monthly unique visitor number. The aggregate number of monthly unique visitors to our six original literature websites is
the sum of the monthly unique visitors for each website. As an individual with a unique IP address may access more than one of our websites, we may count such visitor more than once in such calculation and, as more than one individual may use a
computer terminal with a unique IP address, more than one individual may be counted as a single unique visitor. The average number of monthly unique visitors for the first quarter of 2012 is the average of the monthly unique visitors in each of the
three months of the first quarter of 2012;



unique mobile visitor refers to a visitor of the central reading station of China Mobile with a certain mobile phone number. For any
given period, once a visitor has visited the central reading station through a certain mobile phone number, all subsequent visits from the same mobile phone number during such period do not count towards the unique mobile visitor number for such
period;



unique visitor refers to a visitor to a specific website with the same IP address; and



user time spent refers to the time a user spends on a website after the user has accessed the website for more than three seconds but
excludes any time period with no activity on such website for more than 30 minutes until further action occurs. User time spent on a website in a given period is calculated by aggregating the user time spent by each user on the website in such given
period.

This prospectus contains forward-looking statements that are based on our managements beliefs and
assumptions and on information currently available to us. The forward-looking statements are contained principally in, but not limited to, the sections entitled Prospectus Summary, Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of Operations, Our Industry and Business. These statements relate to future events or to our future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause our or our industrys actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed
or implied by these forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

the PRC government policies relating to the Internet, Internet content providers, including online literature operators;



our ability to effectively protect our intellectual property rights and not infringe on the intellectual property rights of others; and



general economic and business conditions in China and other countries or regions in which we operate.

In some cases, you can identify forward-looking statements by terms such as may, could,
will, should, would, expect, plan, intend, anticipate, believe, estimate, predict, potential, project or
continue or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties
and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the
heading Risk Factors and elsewhere in this prospectus. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or
projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance.

The forward-looking statements made in this prospectus relate only to events or information as of the date on which the
statements are made in this prospectus. Although we will become a public company after this offering and have ongoing disclosure obligations under United States federal securities laws, we do not intend to update or otherwise revise the
forward-looking statements in this prospectus, whether as a result of new information, future events or otherwise.

In 2008, Shanda Interactive commenced a series of reorganization activities to provide each of its business sectors, including the online literature business, with a sharper focus on its respective
industry. As part of the reorganization, in October 2008, Shanghai Hongwen Networking Technology Co., Ltd. (formerly known as Shanghai Shengxuan Networking Technology Co., Ltd.), or Shanghai Hongwen, was established by Ms. Dongxu Wang and
Mr. Mingfeng Chen, each holding a 50% equity interest. In 2008, Shengting entered into a series of contractual arrangements with Shanghai Hongwen and Shanghai Hongwens shareholders through which we gained effective control over the
operations of Shanghai Hongwen.

In 2009, Shanda Networking, which previously operated online literature
businesses of Shanda Interactive, transferred all its assets and liabilities related to the online literature business to Shanghai Hongwen. In March 2009, Shanda Networking transferred its 100% equity interest in Xuanting to Shanghai Hongwen. In
April 2009, Shanda Networking transferred its 50% equity interest in Jinjiang and 60% equity interest in Hong Xiu, respectively, to Shanghai Hongwen.

In April 2009, Cloudary Corporation (formerly known as Shanda Literature Corporation) was incorporated in the Cayman Islands as a direct wholly owned subsidiary of Shanda Interactive. In January 2010,
Cloudary Corporation then acquired all the equity interests in Cloudary Holdings Limited from Shanda Investment. As a result, Cloudary Corporation owns all the equity interest in Shengting and conducts our online literature business in China
primarily through our consolidated affiliated entity, Shanghai Hongwen, which is a holding company of the PRC operating entities.

In June 2009, Shanghai Hongwen acquired a 51% equity interest in Tianjin Huawen Tianxia Book Co., Ltd., or Huawen, one of the most influential
private entities engaging in offline publishing businesses in China.



In November 2009, Shanghai Hongwen acquired rongshuxia.com by setting up a new entity, Tianjin Rongshuxia Information Technology Co., Ltd.,
or Rongshuxia. Shanghai Hongwen currently holds a 51% equity interest in Rongshuxia.



In March 2010, Shanghai Hongwen acquired the offline publishing and distribution business of Beijing Zhongzhi Bowen Book Co., Ltd. by setting up a
new entity, Tianjin Zhongzhi Bowen Book Co., Ltd., or Zhongzhi. Shanghai Hongwen currently holds a 51% equity interest in Zhongzhi.



In March 2010, Shanghai Hongwen entered into a series of agreements to acquire a 70% equity interest in Suzhou Jingwei Network Technology Co., Ltd.,
or Suzhou Jingwei, which operates xxsy.net, a leading Chinese online literature website catering mainly to female readers. Pursuant to the acquisition agreements, the assets and business of Suzhou Jingwei were transferred to Xiaoxiang Shuyuan
(Tianjin) Culture Development Co., Ltd., or Xiaoxiang Shuyuan, which is a new entity established by Shanghai Hongwen and the existing shareholders of Suzhou Jingwei in June 2010. Shanghai Hongwen currently holds a 70% equity interest in Xiaoxiang
Shuyuan.



In May 2010, Shanghai Hongwen acquired readnovel.com, a leading Chinese online literature website catering mainly to younger readers, by
setting up a new entity, Beijing Wangwen Xinyue Technology Co., Ltd., or Wangwen. Shanghai Hongwen held a 55% equity interest in Wangwen from May 2010 to March 2012. In March 2012, Shanghai Hongwen acquired the remaining 45% equity interest in
Wangwen and became a 100% equity owner of Wangwen.

In July 2010, Shanghai Hongwen entered into a series of agreements to acquire a 53.5% equity interest in Shanghai Cuilong Culture Communication Co.,
Ltd., or Shanghai Cuilong, which operates zubunet.com, a digital journal website. Pursuant to the acquisition agreements, the assets and business of Shanghai Cuilong were transferred in November 2010 to Tianjin Yueduwang Technology Co., Ltd.,
or Yueduwang, which is a new entity established by Shanghai Hongwen and the existing shareholders of Shanghai Cuilong. Shanghai Hongwen currently holds a 53.5% equity interest in Yueduwang.



In March 2011, Shanghai Hongwen set up a new entity, Beijing Shanda Xinli Film & TV Culture Co., Ltd. (formerly known as Beijing Shanda New
Classics Film & TV Culture Co., Ltd.), or Shanda Xinli, to which we intend to license adaptation rights of the literary works on our websites to produce movie and television scripts. Shanghai Hongwen currently holds a 51% equity interest in
Shanda Xinli.



In May 2011, Shanghai Hongwen set up a new entity, Zhejiang Huayun Digital Technology Co., Ltd., or Huayun Digital, which distributes digital
magazines and literary works on our websites to end users via cable television companies. Shanghai Hongwen currently holds a 61% equity interest in Huayun Digital.

The relevant agreements to acquire equity interests in Huawen, Rongshuxia,
Zhongzhi, Tianfang Tingshu, Xiaoxiang Shuyuan and Yueduwang contain a general provision which calls for the parties, prior to or in the event of our initial public offering, to engage in good faith discussions and enter into new agreements under
which the non-controlling shareholders of these acquired entities may exchange their remaining interests into our shares or options to acquire our shares. At the time of negotiating these transactions, such provisions were intended to provide
liquidity for the non-controlling shareholders with respect to their remaining interests in such entities should our shares become publicly listed. In addition, certain non-controlling shareholders of these acquired entities remain the key employees
of such entities, including Xiaoxiang Shuyuan, Tianfang Tingshu as well as two of our offline businesses, Huawen and Zhongzhi. Also, under the agreement to acquire the equity interests in Tianfang Tingshu in 2010, we may be required to purchase the
remaining equity holdings from the non-controlling shareholders if we fail to complete this offering within an agreed-upon time period or fail to reach agreement on other terms.

In March 2010, Shanda Literature Singapore Pte. Ltd. was incorporated in Singapore as a wholly owned subsidiary of
Cloudary Holdings Limited with the strategy to expand our online literature business into international markets.

In January 2012, Shanghai Shengqing Network Technology Co., Ltd., or Shengqing, was established, and Shanda Networking
currently holds a 100% equity interest in Shengqing. Shengting is in the process of entering into a series of contractual arrangements with Shengqing and Shanda Networking, through which we expect to gain control over the operations of Shengqing,
thereby resulting in Shengqing becoming our consolidated affiliate entity in PRC.

In this prospectus,
our websites refers to, unless the context otherwise requires, our six original literature websites and zubunet.com, which is operated by Yueduwang, tingbook.com, which is operated by Tianfang Tingshu and
yuncheng.com, which is operated by Shanghai Hongwen. Our six original literature websites include:



qidian.com, which is operated by Xuanting. In this prospectus, unless the context otherwise requires, all operating data and information in
respect of qidian.com are presented to include the operating data and information of its sister websites that are operated by Xuanting such as qdmm.com;



readnovel.com, which is operated by Wangwen;



hongxiu.com, which is operated by Hong Xiu;



xs8.cn, which is operated by Yueyan;



xxsy.net, which is operated by Xiaoxiang Shuyuan; and



rongshuxia.com, which is operated by Rongshuxia.

Our Corporate Structure

Foreign ownership of
Internet-based businesses is subject to significant restrictions under current PRC laws and regulations. The PRC government regulates Internet access, the distribution of online literary or other content and the conduct of online commerce through
strict business licensing requirements and other government regulations. These laws and regulations also include limitations on foreign ownership in PRC companies that operate online literature business. Specifically, foreign investors are not
allowed to own any equity interests in any entity conducting the online literature business. Since we are a Cayman Islands company and therefore are a foreign or foreign-invested enterprise under PRC law, neither we nor our PRC subsidiary is
eligible to hold a license to operate online literature business in China.

To comply with the PRC laws and
regulations, we conduct our operations in China through a series of contractual arrangements entered into among Shengting, Shanghai Hongwen, and Shanghai Hongwens shareholders, through which we exercise effective control over the operations of
Shanghai Hongwen and its subsidiaries and receive economic benefits generated from shareholders equity interests in this entity.

The following diagram illustrates our corporate and ownership structure, the
place of formation and the ownership interests of our subsidiaries as of the date of this prospectus.

(1)

Shanghai Hongwen is our consolidated affiliated entity established in China and each of Ms. Dongxu Wang and Mr. Mingfeng Chen owns 50% of
the equity interest in Shanghai Hongwen. Ms. Dongxu Wang is an employee of Shanda Interactive and Mr. Mingfeng Chen is an employee of our company.

(2)

We do not consolidate Jinjiang but share in its profit or loss through our 50% equity interest in this entity.

(3)

We do not consolidate Zhejiang Huayun Digital Technology Co., Ltd. as we do not have control over its operations but share in its profit or loss
through our 61% equity interest in this entity.

After the completion of this offering, Shanda Investment and public
investors will have % and % of the total voting power of our shares, respectively, and
% and % of the economic interest of our shares, respectively. The following diagram illustrates our
corporate and ownership structure, the place of formation and the ownership interests of our subsidiaries immediately after the completion of this offering, assuming that the underwriters do not exercise their over-allotment option.

The following is a summary of the key agreements currently in effect among
Shengting, Shanghai Hongwen and the shareholders of Shanghai Hongwen:



Loan Agreements. Shengting entered into a loan agreement with each of the shareholders of Shanghai Hongwen, namely
Ms. Dongxu Wang and Mr. Mingfeng Chen, in August 2008, which was amended and restated in February 2011 in connection with the increased capital of Shanghai Hongwen. Under these loan

agreements, Shengting has granted an interest-free loan of RMB5.0 million to each of Ms. Dongxu Wang and Mr. Mingfeng Chen solely for their capital contributions to Shanghai
Hongwen. The loans shall become payable when Shengting requests repayment. Shengting may request repayment of the loans with 30 days advance notice and may require the loans to be repaid in cash or in other forms, but the shareholders of
Shanghai Hongwen may not repay all or any part of the loans without Shengtings prior written request.



Exclusive Call Option Agreement. Shanghai Hongwen and its shareholders entered into an exclusive call option agreement
with Shengting in 2008. Pursuant to this agreement, Shengting and any third party designated by it have the exclusive right to purchase from the shareholders of Shanghai Hongwen all or any part of their equity interests in Shanghai Hongwen at a
purchase price equal to the lowest price permissible by the then-applicable PRC laws and regulations. Shengting may exercise such option at any time during the term of the agreement until it has acquired all equity interests of Shanghai Hongwen,
subject to applicable PRC laws. Moreover, under the 2008 exclusive call option agreement, neither Shanghai Hongwen nor its shareholders may take actions that could materially affect Shanghai Hongwens assets, liabilities, operation, equity and
other legal rights without the prior written approval of Shengting, including, without limitation, declaration and distribution of dividend and profit; sale, assignment, mortgage or disposition of, or encumbrances on, Shanghai Hongwens equity;
merger or consolidation; acquisition of and investment in any third-party entities; creation, assumption, guarantee or incurrence of any indebtedness; entering into other materials contracts. The agreement is for an initial term of 20 years and
renewable upon Shengtings request. The agreement was amended and restated in March 2011.



Business Operation Agreement. Shengting entered into a business operation agreement with Shanghai Hongwen and its
shareholders in March 2011. Under this agreement, Shanghai Hongwen must designate the candidates nominated by Shengting to be the directors on its board of directors, and must appoint the persons recommended by Shengting to be its general manager,
financial controller and other senior management. Moreover, Shenghai Hongwen agreed that it will not engage in any transactions that could materially affect its assets, liabilities, rights or operations without the prior consent of Shengting. Such
transactions include incurrence or assumption of any indebtedness that are not in the ordinary course of business; sale or purchase of any assets or rights with values of more than RMB0.1 million; declaration of dividends or profit
distribution; encumbrance on any of their assets or intellectual property rights in favor of a third party; or transfer of any rights or obligations under this agreement to a third party. The agreement is for an initial term of 20 years and
renewable upon Shengtings request. Shengting may terminate the agreement at any time by providing 30 days advance written notice to Shanghai Hongwen and to each of its shareholders. Neither Shanghai Hongwen nor any of its
shareholders may terminate this agreement prior to its expiration date.



Exclusive Technology Consulting and Service Framework Agreement. Shengting and Shanghai Hongwen entered into an
exclusive technology consulting and service framework agreement in March 2011. Under this agreement, Shanghai Hongwen and its subsidiaries agreed to engage Shengting as its exclusive provider of technology consulting and services. Unless otherwise
agreed among the parties, Shanghai Hongwen will pay to Shengting service and consulting fees determined based on the service fee bills provided by Shengting. Shengting will exclusively own any intellectual property arising from the performance of
this agreement. The agreement is for an initial term of 20 years and renewable upon Shengtings request. Shengting may terminate the agreement at any time by providing 30 days advance written notice to Shanghai Hongwen. Shanghai
Hongwen may not terminate this agreement prior to its expiration date.



Share Pledge Agreement. The shareholders of Shanghai Hongwen entered into a share pledge agreement with Shengting in
August 2008, which was amended and restated in March 2011. Under the share pledge agreement, the shareholders of Shanghai Hongwen pledged all of their equity interests in Shanghai Hongwen to Shengting as collateral for all of their payments due to
Shengting and to secure performance of all obligations of Shanghai Hongwen and its shareholders under the above loan agreements, exclusive call option agreement, exclusive technology consulting and service framework agreement and the business
operation agreement. The pledge shall remain effective until all obligations under such agreements have

been fully performed. Shanghai Hongwen is prohibited from declaring any dividend or making any profit distribution during the term of the pledge. Without Shengtings prior written consent,
neither shareholder of Shanghai Hongwen may transfer any equity interests in Shanghai Hongwen. If any event of default as provided for therein occurs, Shengting, as the pledgee, will be entitled to dispose of the pledged equity interests through
transfer or assignment and use the proceeds to repay the loans or make other payments due under the above agreements.



Power of Attorney. Each shareholder of Shanghai Hongwen executed an irrevocable power of attorney in March 2011 to
appoint Shengting as the attorney-in-fact to act on his or her behalf on all matters pertaining to Shanghai Hongwen and to exercise all of his or her rights as a shareholder of Shanghai Hongwen, including the right to attend shareholders meetings,
to exercise voting rights and to appoint directors, a general manager, financial controller and other senior management of Shanghai Hongwen. The power of attorney is irrevocable and continually valid as long as the principal is the shareholder of
Shanghai Hongwen. These powers of attorney superseded the share entrustment agreement the parties executed in 2008, under which Ms. Dongxu Wang and Mr. Mingfeng Chen acknowledged that they are nominee shareholders of Shanghai Hongwen on
behalf of Shengting.

As a result of these contractual arrangements and various operational
agreements, we are considered the primary beneficiary of Shanghai Hongwen and its subsidiaries as we have the power to direct activities of these entities and, under our sole discretion, can receive substantially all economic interests in these
entities. Accordingly, we consolidate the results of operations of Shanghai Hongwen and its subsidiaries in our financial statements.

In the opinion of our PRC legal counsel, Zhong Lun Law Firm, the ownership structure and the contractual arrangements among our PRC subsidiary, and Shanghai Hongwen and/or its shareholders comply with,
and immediately after this offering, will comply with, current PRC laws and regulations. There are, however, substantial uncertainties regarding the interpretation and application of current or future PRC laws and regulations. Accordingly, PRC
governmental authorities may ultimately take a view that is inconsistent with the opinion of Zhong Lun Law Firm. See Risk Factors  Risks Related to Our Corporate Structure.

After the completion of this offering, Shanda Investment will have more than 50% of the total voting power of our ordinary
shares and we will be a controlled company within the meaning of the NYSE rules. Moreover, Mr. Tianqiao Chen, our chairman, currently also serves as the chairman, chief executive officer and president of Shanda Interactive and a
director of Shanda Games Limited and Ku6, subsidiaries of Shanda Interactive. Mr. Danian Chen, our director, currently also serves as a director and the chief operating officer of Shanda Interactive and a director of Shanda Games Limited and
Ku6. Ms. Qian Qian Chrissy Luo, our director, currently also serves as a non-executive director of Shanda Interactive. Ms. Grace Wu, our director, currently also serves as the chief financial officer of Shanda Interactive and a director of
Shanda Games Limited and Ku6.

Based upon an assumed initial offering price of
US$ per ADS (the mid-point of the estimated initial public offering price range shown on the front cover of this prospectus), we estimate that we will receive net proceeds from
this offering of approximately US$ million after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. If the underwriters exercise
in full their option to purchase additional ADSs, we will receive approximately US$ million. A US$1.00 increase (decrease) in the assumed initial offering price would increase
(decrease) the net proceeds to us from this offering by US$ million after deducting underwriting discounts and commissions and the estimated offering expenses payable by
us. We will not receive any proceeds from the sale of ADSs by the selling shareholder.

We intend to use the
net proceeds we receive from this offering primarily for the following purposes:



approximately US$ million to finance our business expansion, including for
the purposes of content acquisitions, and sales and marketing initiatives;



approximately US$69.0 million to repay all of our outstanding long-term borrowings from Shanda Interactive and its affiliates in the amount of
RMB434.8 million (US$69.0 million) as of March 31, 2012; and



the remaining amount to fund working capital as well as for other general corporate purposes, including financing potential strategic acquisitions
and investments.

In using the proceeds of this offering, as an offshore holding company,
under PRC laws and regulations, we are permitted to provide funding to our PRC subsidiary only through loans or capital contributions. Subject to satisfaction of applicable government registration and approval requirements, we may extend
inter-company loans to our PRC subsidiary or make additional capital contributions to our PRC subsidiary to fund its capital expenditures or working capital. We intend to invest the proceeds of this offering into our PRC subsidiary and thereafter
convert such proceeds into Renminbi promptly upon completion of relevant PRC government registration or receipt of the relevant approval. If we provide funding to our PRC subsidiary through capital contributions or loans, we will need to increase
our PRC subsidiarys approved registered capital and total investment amount, which requires approval from the MOFCOM or its local branches. Such approval process typically takes 30 to 90 days, and sometimes longer, from the time the
MOFCOM or its local branches receive the application documents. If we provide funding to a PRC subsidiary through loans, we will also need to register such loans with SAFE, which usually requires no more than 20 working days to complete. We cannot
assure you that we will be able to complete these government registrations or obtain the relevant approvals on a timely basis, if at all. See Risk Factors  Risks Related to Doing Business in China  PRC regulation of loans
and direct investment by offshore holding companies to PRC entities may delay or prevent us from using our net proceeds from this offering to make loans or additional capital contributions to our PRC operating subsidiaries.

Pending use of the net proceeds, we intend to invest our net proceeds in short-term, interest-bearing debt instruments or
bank deposits.

The foregoing represents our current intentions with respect of the use and allocation of the
net proceeds to us from this offering based upon our present plans and business conditions, but our management will have significant flexibility and discretion in applying the net proceeds of this offering. The occurrence of unforeseen events or
changed business conditions may result in application of our proceeds from this offering in a manner other than as described in this prospectus.

We have never declared or paid dividends on our ordinary shares, and we do not have any plan to declare or pay any
dividends on our ordinary shares in the near future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

We are a holding company incorporated in the Cayman Islands. We rely principally on dividends from our PRC subsidiary for
our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiary to pay dividends to us. See Regulation  Regulation of Foreign Currency Exchange and
Dividend Distributions.

Our board of directors has complete discretion in deciding whether to distribute
dividends. Even if our board of directors decides to pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus,
the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors.

If we pay any dividends, our ADS holders will be entitled to such dividends to the same extent as holders of our
Class B ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See Description of American Depositary Shares. Cash dividends on our Class B ordinary shares, if any,
will be paid in U.S. dollars.

The following table sets forth our total capitalization as of March 31, 2012:



on an actual basis;



on a pro forma basis to reflect the conversion of all Series A preference shares into 11,313,150 Class A ordinary shares immediately
following the completion of this offering; and



on a pro forma as-adjusted basis to give effect to (i) the above, (ii) the issuance and sale of
Class B ordinary shares in the form of ADSs by us in this offering and (iii) the repayment of outstanding loans in the amount of US$69.0 million using the
proceeds of this offering, assuming an initial public offering price of US$ per ADS, the mid-point of the estimated range of the initial public offering price, after deducting
estimated underwriting discounts and commissions and offering expenses payable by us and assuming no exercise of the underwriters option to purchase additional ADSs.

The pro forma as-adjusted information below is illustrative only and our capitalization following the closing of this
offering is subject to adjustment based on the initial public offering price of our ADSs and other terms of this offering determined at pricing. You should read this table together with our consolidated financial statements and the related notes
included elsewhere in this prospectus and the information under Managements Discussion and Analysis of Financial Condition and Results of Operations.

Excludes 18,772,500 Class B ordinary shares issuable upon the exercise of options outstanding as of March 31, 2012.

(2)

A US$1.00 increase (decrease) in the assumed initial public offering price of
US$ per ADS, the mid-point of the estimated range of the initial public offering price, would increase (decrease) each of additional paid-in capital, total shareholders
equity and total capitalization by US$ million on an as-adjusted basis, after deducting the estimated underwriting discounts and commissions, estimated offering expenses and
placement fee payable by us and assuming no exercise of the underwriters option to purchase additional ADSs.

If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public
offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per Class B ordinary share is substantially in excess of the pro forma as-adjusted net
tangible book value per ordinary share.

Our net tangible book value as of March 31, 2012 represents a negative
balance of approximately US$21.0 million, or approximately US$0.08 per ordinary share or US$ per ADS. Net tangible book value represents the amount of our total
consolidated assets, excluding intangible assets and goodwill, less the amount of our total consolidated liabilities. The pro forma net tangible book value represents our net tangible book value after giving effect to (i) the conversion of all
of our outstanding preference shares into Class A ordinary shares immediately following the completion of this offering and (ii) the repayment of our outstanding loans in the amount of US$69.0 million using the proceeds of this
offering. The pro forma as-adjusted net tangible book value represents the pro forma net tangible book value after giving effect to our sale of the ADSs offered in this offering at the assumed initial public offering price of
US$ per ADS, the mid-point of the estimated range of the initial public offering price, after deducting underwriting discounts and commissions and estimated offering
expenses payable by us. Dilution is determined by subtracting the pro forma as-adjusted net tangible book value per ordinary share from the assumed initial public offering price of
US$ per ordinary share, which is based on the mid-point of the estimated range of the initial public offering price.

Without taking into account any other changes in net tangible book value after March 31, 2012, other than to give effect
to (i) our sale of the ADSs offered in this offering at the initial public offering price of US$ per ADS, the mid-point of the estimated range of the initial public
offering price, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, (ii) the conversion of all of our outstanding preference shares into Class A ordinary shares immediately following the
completion of this offering and (iii) the repayment of our outstanding loans in the amount of US$69.0 million using the proceeds of this offering, our pro forma as-adjusted net tangible book value as of March 31, 2012 would have been
US$ million, or US$ per ordinary share, including Class B ordinary shares underlying our
outstanding ADSs, and US$ per ADS. This represents an immediate increase in the pro forma net tangible book value of
US$ per ordinary share and US$ per ADS to the existing shareholder and an immediate dilution in
the pro forma net tangible book value of US$ per ordinary share and US$ per ADS to investors
purchasing ADSs in this offering.

The following table illustrates this dilution:

Per Ordinary Share

Per ADS

Assumed initial public offering price per Class B ordinary share

US$

US$

Net (negative) tangible book value as of March 31, 2012

Pro forma net tangible book value after giving effect to (i) the conversion of all of our outstanding preference shares into
Class A ordinary shares and (ii) the repayment of our outstanding loans

Pro forma as-adjusted net tangible book value after giving effect to (i) the conversion of all of our outstanding preference
shares into Class A ordinary shares, (ii) the repayment of our outstanding loans and (iii) our sale of the ADSs offered in this offering

Dilution in pro forma as-adjusted net tangible book value to new investors in this offering

The following table summarizes, on the pro forma as-adjusted basis described
above, the number of ordinary shares (in the form of ADSs or ordinary shares) purchased from us as of March 31, 2012, the total consideration and the average price per ordinary share/ADS paid by our existing shareholders and new investors after
deducting estimated underwriting discounts and commissions and the estimated offering expenses. The total number of ordinary shares does not include ordinary shares underlying the ADSs issuable upon the exercise of the option granted to the
underwriters to purchase additional ADSs.

Ordinary SharesPurchased

Total Consideration

Average Price perOrdinary Share

Average Priceper ADS

Number

Percent

Amount

Percent

Existing shareholders

%

US$

%

US$

US$

New investors

US$

US$

US$

Total

100.0

%

US$

100.0

%

A US$1.00 increase (decrease) in the assumed initial public offering price of
US$ per ADS would increase (decrease) our pro forma as-adjusted net tangible book value by
US$ million, or by US$ per Class B ordinary share and
US$ per ADS, and the dilution in pro forma as-adjusted net tangible book value to new investors in this offering by
US$ per Class B ordinary share, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus and after deducting estimated
underwriting discounts and commissions and offering expenses payable by us.

The pro forma as-adjusted
information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering to be
determined at pricing.

The preceding discussion and tables assume no exercise of options to purchase ordinary
shares outstanding as of March 31, 2012. As of March 31, 2012, there were 18,772,500 Class B ordinary shares issuable upon exercise of options to purchase ordinary shares. To the extent outstanding options are exercised, new investors will
experience further dilution.

Our business is primarily conducted in China and substantially all of our revenues and expenses are denominated in
Renminbi. This prospectus contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars and from U.S. dollars
to Renminbi in this prospectus were made at a rate of RMB6.2975 to US$1.00, the exchange rate as set forth in the H.10 statistical release of the U.S. Federal Reserve Board on March 30, 2012. We make no representation that any Renminbi or
U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, or at all. The PRC government imposes controls over its foreign currency reserves in part through direct
regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On , 2012, the daily exchange rate reported by the Federal
Reserve Board was RMB to US$1.00.

The following table sets forth information concerning exchange rates between Renminbi and the U.S. dollar for the
periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you.

Exchange Rate

Period

Period End

Average(1)

High

Low

(RMB per US$1.00)

2007

7.2946

7.5806

7.2946

7.8172

2008

6.8225

6.9193

6.7800

7.2946

2009

6.8259

6.8295

6.8176

6.8470

2010

6.6000

6.6703

6.6000

6.8330

2011

6.2939

6.4374

6.2939

6.6364

December

6.2939

6.3482

6.2939

6.3733

2012

January

6.3080

6.3119

6.2940

6.3330

February

6.2935

6.2997

6.2935

6.3120

March

6.2975

6.3125

6.2975

6.3315

Three-month period ended March 31, 2012

6.2975

6.2997

6.2935

6.3330

April

6.2790

6.3043

6.2790

6.3150

May

6.3684

6.3242

6.3052

6.3684

June (through June 1)

6.3692

6.3692

6.3692

6.3692

(1)

Annual averages and the average for the three-month period ended March 31, 2012 were calculated by using the average of the exchange rates on the
last day of each month during the relevant period. Monthly averages were calculated by using the average of the daily rates during the relevant month.

We were incorporated in the Cayman Islands in order to enjoy certain benefits, such as political and economic stability,
an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions and the availability of professional and support services. Certain disadvantages, however, accompany incorporation in the Cayman Islands.
These disadvantages include a less developed body of Cayman Islands securities laws that provide significantly less protection to investors as compared to the laws of the United States and the potential lack of standing by Cayman Islands companies
to sue in the federal courts of the United States.

Our organizational documents do not contain provisions
requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

Substantially all of our operations are conducted and substantially all of our assets are located in China. All of our
officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within
the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in
the United States.

We have appointed Puglisi & Associates as our agent upon whom process may be
served in any action brought against us under the securities laws of the United States.

Conyers
Dill & Pearman, our special Cayman Islands counsel, and Zhong Lun Law Firm, our counsel as to PRC law, have advised us that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:



recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability
provisions of the federal securities laws of the United States or any state in the United States; or



entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of
the United States or any state in the United States.

Conyers Dill & Pearman has
advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to
enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation. However, Conyers Dill & Pearman has advised us that it is uncertain whether a U.S. court judgment based on the civil
liability provisions of the U.S. federal securities laws would be enforceable in the Cayman Islands because a Cayman Islands court may determine that such judgment is in the nature of a penalty and therefore not subject to
enforcement proceedings as a debt.

Zhong Lun Law Firm has advised us that the recognition and enforcement of
foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country
where the judgment is made or on reciprocity between jurisdictions. China does not have any treaties or other agreements with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according
to the PRC Civil Procedures Law, courts in the PRC will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public
interest. As a result, it is uncertain whether a PRC court would enforce a judgment rendered by a court in the United States.

The following selected consolidated financial data for the periods and as of the dates indicated is qualified in their
entirety by reference to, and should be read in conjunction with, our consolidated financial statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations, both of which are
included elsewhere in this prospectus.

The selected consolidated statements of operations data and selected
consolidated cash flows data presented below for the fiscal years ended December 31, 2009, 2010 and 2011 and the selected consolidated balance sheet data as of December 31, 2010 and 2011 have been derived from our audited consolidated
financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data and selected consolidated statements of cash flows data presented below for the fiscal year ended December 31, 2008 and the selected
consolidated balance sheet data as of December 31, 2009 have been derived from our audited condensed consolidated financial statements which are not included in this prospectus. The selected consolidated statements of operations data and selected
consolidated statements of cash flows data presented below for the three months ended March 31, 2011 and 2012 and the selected consolidated balance sheet data as of March 31, 2012 have been derived from our unaudited condensed consolidated financial
statements included elsewhere in this prospectus. The selected consolidated balance sheet data as of December 31, 2008 has been derived from our unaudited condensed consolidated financial statements which are not included in this prospectus.

We have prepared the unaudited condensed consolidated financial statements on the same basis as our audited
consolidated financial statements. The unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, which we consider necessary for a fair presentation of our financial position and
results of operations for the periods presented. Our audited consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and have been audited by
PricewaterhouseCoopers Zhong Tian CPAs Limited Company, an independent registered public accounting firm.

We
have not included financial information for the year ended December 31, 2007 as such information is not available on a basis that is consistent with the consolidated financial information for the years ended December 31, 2008, 2009, 2010
and 2011 and cannot be provided on a U.S. GAAP basis without unreasonable effort or expense.

Our
historical results are not necessarily indicative of our results to be expected for any future period.

For a description of the pro forma adjustments used to calculate pro forma loss per share for the year ended December 31, 2011, see
Note 26  Unaudited Pro Forma Loss Per Share for Conversion of Series A Preferred Shares and Repayment of Long-Term Borrowings to our consolidated financial statements included elsewhere in this prospectus.

For a description of the pro forma adjustments used to calculate pro forma earnings per share for the three months ended March 31, 2012, see
Note 25  Unaudited Pro Forma Balance Sheet and Earnings Per Share for Conversion of Series A Preferred Shares to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

(2)

Pro forma basis reflects the conversion of all outstanding Series A preference shares on a one-for-one basis into an aggregate of 11,313,150
Class A ordinary shares immediately following the completion of this offering.

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our
financial condition and results of operations in conjunction with the section entitled Selected Consolidated Financial and Operating Data and our consolidated financial statements and the related notes included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result
of various factors, including those set forth under Risk Factors and elsewhere in this prospectus.

Overview

We are the largest online community-driven literary platform in China. Our platform comprises an expanding library of original and copyrighted third-party literary works and a large and highly engaged
community of users which can be monetized across multiple media formats and devices. Our platform includes six original literature websites covering a wide array of genres, which in the aggregate attracted an average of approximately
66.9 million monthly unique visitors in the first quarter of 2012, according to monthly statistical reports issued by iResearch. Since our inception to March 31, 2012, over 1.6 million authors had created approximately 6.0 million
literary works on our websites. Through our distribution partner, the central reading station of China Mobile, our content attracted 68 million unique mobile visitors, including 21 million who purchased premium content, and 1.6 billion average
monthly mobile page views in 2011. A total of 115 million unique mobile visitors viewed our content through the central reading station of China Mobile from March 2010 to December 2011.

Our online Chinese literature community is widely recognized as the leading destination for online literature in China.
According to the iResearch report, five of our six original literature websites are among the top ten most visited Chinese literature websites, based on the amount of user time spent in 2011. In 2011, we had over 72.1% of Chinas online
literature market in terms of revenues and 57.7% of the market in terms of user time spent, according to the iResearch report. Our qidian.com is the largest Chinese original literature website, with 43.8% of Chinas online literature
market in terms of revenues in 2011, according to the iResearch report. We believe our large and highly engaged online community creates a natural network effect that attracts Chinas aspiring and established authors, thereby helping to
perpetuate its relevance and growth.

We offer a comprehensive and continually expanding library of original
literary works covering a wide array of genres, from fantasy, wuxia (a genre of Chinese fiction concerning the adventures of martial artists and knight errant), science fiction and mystery to romance. The title of one of our fantasy novels published
on our website, Dou Po Cang Qiong, was the most searched term on baidu.com during April 2011, ahead of NBA, Taobao, Youku and QQ, according to Baidu Search Ranking. One of our literary works, The Desolation of the
Ancient Path at Yangguan, was selected as reading test material for Chinas college entrance exam in 2008. Our online literature library, consisting of literary works generated by our online community, had approximately 6.0 million
titles as of March 31, 2012. In the first quarter of 2012, an average of 80 million Chinese characters were uploaded daily to this library. In addition, we offered over 118,000 audio book chapters and more than 710 electronic magazines on our
platform as of March 31, 2012. Further, as of March 31, 2012, more than 330 third-party content providers, including publishers and authors, had agreed to make more than 84,560 copyrighted books available on our platform. Our library is also
complemented by our offline publishing business, which published two of the top three bestselling literature books in China in 2010 and the bestselling general interest book published among private publishing companies in China in 2011, according to
Openbook. Our readers can access all of the content in our online literature library and from third-party providers and selected content from our offline publishing business through Yun Zhong Shu Cheng (yuncheng.com), which is a website we
launched in October 2010 to aggregate content sourcing and distribution.

We currently offer free as well as
paid premium content. We generate revenues primarily by charging users for viewing paid content in our online literature library through a variety of devices and using our community tools and through revenue-sharing arrangements with other
distribution channel providers, including e-reader and wireless

carriers. We license certain content rights to online games companies and television and film studios and also sell advertisements on our websites. We generate revenues from our offline
publishing business by selling books through chain and online bookstores and wholesalers.

Factors Affecting Our Results of
Operations

Our business and results of operations are subject to general economic conditions and
conditions affecting the PRC literature industry in general, including growth of Internet usage and penetration rate, government policies and initiatives affecting the Internet industry, and the competition environment. Our results of operations
will continue to be affected by such general factors.

Our results of operations are also directly affected by
a number of company-specific factors, including:



Expansion of Our User Base. Our success in generating revenues, especially revenues from online paid users and
advertising services, largely depends on our ability to maintain and expand the user base of our online community. The size and quality of our user base directly affects the effectiveness of our advertising services and our monetization potential.
Our user base helps us attract aspiring authors and offer high quality content, which drive the online traffic and transactions originated from our content. Our net revenues from online advertising and online paid users have increased significantly
from 2009 to 2011, largely due to the growth of our user base and corresponding ability to attract advertisers. Our registered users increased from 38.0 million as of December 31, 2009 to 72.1 million as of December 31, 2010 and
to 99.0 million as of December 31, 2011 and further to 123.2 million as of March 31, 2012.



Conversion of Registered Users to Active Paying Users. Further growth of our revenues generated from online paid users
will depend upon our ability to convert our registered users into active paying users and increase the portion of active paying users among our registered users. Our net revenues from online paid users increased from RMB54.2 million in 2009 to
RMB103.6 million in 2010 and to RMB182.8 million (US$29.0 million) in 2011, representing an annual growth of 91.3% and 76.4%, respectively. Our net revenue from online paid users amounted to RMB52.1 million (US$8.3 million) in the three months
ended March 31, 2012. Such growth was primarily driven by the corresponding increase in the number of active paying users. We had an aggregate of 123.2 million registered users as of March 31, 2012, among which only 1.1% spent money in the
first quarter of 2012. Given that only a small fraction of our registered users currently are active paying users, we believe significant growth potential in online paid users service exists.



Offering of More Popular Content. We derived a substantial majority of our net revenues directly from monetizing our
literary content, including (i) charging users to view paid content in our online literature library through a variety of devices and to use our community tools, (ii) revenue-sharing arrangements with other distribution channel providers,
(iii) licensing certain content rights to online games companies and television and film studios, and (iv) offline publishing. Our future growth depends significantly on our ability to source more popular content that appeals to our
readers and other content users. Popular content enables us to deliver a differentiated and engaging experience for our users and readers and helps us generate additional content-based revenues.



Effective Control of Copyright Licensing Cost. Copyright licensing cost has historically accounted for the biggest
portion of our online cost of revenues and accounted for 60.1%, 59.2%, 47.6% and 43.4% of our net online revenues in 2009, 2010, 2011 and the three months ended March 31, 2012, respectively. Our ability to effectively control copyright licensing
cost has affected and will continue to affect significantly our gross profit and profitability. We acquire or license the copyrights of popular literary content either at a fixed price or through revenue-sharing arrangements with authors and
third-party content providers. Due to the improving monetization prospects of original literary content, we expect to make more premium payments in order to retain popular authors. As a result, we expect our copyright licensing cost to increase on
an absolute basis as we expand our literary content library. However, given our industry leading market share and the expanding content monetization channels available on our platform, we believe we have the ability to control the overall percentage
of revenues that we will pay to our authors.

Management of Offline Sales and Collection Cycle. Our ability to effectively manage and shorten the selling and
collection cycle for our offline business will significantly affect the sales and inventory risks for our offline business. Under the sales model that is generally adopted in the publishing business in China, we need to deliver books to chain and
online bookstores and wholesalers with no or limited upfront payments and receive payments based on the sales orders confirmed by both parties. The wholesalers and bookstores are permitted to return unsold books to us. As a result, we have a
relatively long selling and collection cycle, which generally ranges from three to eight months depending on the internal management of the bookstores or wholesalers, that requires us to make significant resource commitments prior to realizing
revenues. Therefore, we face inventory risks in connection with the books that the bookstores or wholesalers are unable to sell. We must assess the marketability of our offline books in order to increase sales, shorten the selling cycles and reduce
inventory risks.



Relationship with Third-Party Channels. We rely heavily on third-party channels to generate revenues from our wireless
service and offline business. In 2009, 2010, 2011 and the three months ended March 31, 2012, approximately 31.0%, 62.6%, 62.3% and 58.6%, respectively, of our net revenues were attributable to wireless service and offline business through
third-party channels. Our net revenues attributable to third-party channels as a percentage of our net revenues increased from 2009 to 2010, primarily due to the rapid growth of both our wireless service and offline businesses. Such percentage for
2011 was relatively stable as compared to that in 2010. We intend to increase our revenues by cooperating with these third-party channel providers. Particularly, we plan to continue to expand our distribution channels by expanding and strengthening
our relationships with wireless carriers, third-party online portals, chain and online bookstores and wholesalers and manufacturers of personal computers, mobile phones, mobile tablets and e-readers and by expanding our mobile device application
offerings to reach more mobile users, such as introducing a WP7 application for Nokia.

Revenues

Revenues from online business primarily consist of revenues generated from (i) online paid users,
(ii) wireless service, (iii) online advertising, and (iv) copyright licensing. Revenues from offline business are primarily generated from sales of books and other publications through chain and online bookstores and wholesalers.

Our net revenues are stated net of discounts, rebates, returns, business tax and surcharges. The following
table sets forth a breakdown of revenues, both in absolute amount and as a percentage of net revenues, for the periods indicated.